Testing Regime Non-stationarity of the G-7 Inflation Rates: Evidence from the Markov Switching Unit Root Test

10.29973/JCSA.200903.0001

Shyh-Wei Chen；Chung-Hua Shen

Unit root ； Markov switching model ； inflation ； non-linearity

中國統計學報

47卷1期（2009 / 03 / 01）

1 - 18

英文

Using G-7 data, this study employs a Markov Switching unit root regression to investigate the issue of the non-stationarity and non-linearity of inflation rates. The results convincingly support the view that the inflation rates in the G-7 nations are characterized by a two-regime Markov Switching unit root process. For Italy the inflation rates are characterized by a unit root process, consistent with the accelerationist hypothesis that the inflation rates are either in the high-volatility regime or in the low-volatility regime. For Canada, France, Germany, Japan, the UK and the USA, the shocks to the inflation rates are highly persistent in one regime, but have finite lives in the other regime. The high-volatility regime arises in most of the nations considered and it tends to prevail over a relatively long period.