Tests for a Change in Persistence Against the Null of Difference-Stationarity with Application to the Behaviour of Price Inflation

Economics

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with Stephen Leybourne, Vanessa Smith and Paul Newbold)

Economists have recognised the possibility that a time series may change structure from trend-stationarity to difference-stationarity, or vice versa. Taking difference-stationarity as the null hypothesis, we develop tests for this possibility, where neither the location nor direction of any possible change under the alternative hypothesis need be specified. Application of these tests to series on consumer price inflation in the G-7 countries reveals evidence of a change from trend-stationarity to difference-stationarity in the majority of these countries.