Does a Threshold Inflation Rate Exist? Quantile Inferences for Inflation and Its Variability

WenShwo Fang (), Stephen Miller and Chih-Chuan Yeh ()
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WenShwo Fang: Department of Economics, Feng Chia University
Chih-Chuan Yeh: Department of Finance, The Overseas Chinese Institute of Technology

No 921, Working Papers from University of Nevada, Las Vegas , Department of Economics

Abstract: Using quantile regressions and cross-sectional data from 152 countries, we examine the relationship between inflation and its variability. We consider two measures of inflation – the mean and median – and three different measures of inflation variability – the standard deviation, relative variation, and median deviation. All results from the mean and standard deviation, the mean and relative variation, or the median and the median deviation support both the hypothesis that higher inflation creates more inflation variability and that inflation variability raises inflation across quantiles. Moreover, higher quantiles in both cases lead to larger marginal effects of inflation (inflation variability) on inflation variability (inflation). We particularly consider whether thresholds for inflation rate or inflation variability exist before finding such positive correlations. We find evidence of thresholds for the effect of inflation (inflation variability) on inflation variability (inflation). That is, for low inflation (inflation variability) countries, inflation (inflation variability) does not affect inflation variability (inflation). Finally, a series of robustness checks, including a set of additional explanatory variables as well as controlling for potential endogeneity with instrumental variables, leaves our findings generally unchanged.

Keywords: inflation; inflation variability; inflation targeting; threshold effects; quantile regression (search for similar items in EconPapers)
JEL-codes: C21 E31 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2009-06, Revised 2009-12
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Does a threshold inflation rate exist? Quantile inferences for inflation and its variability (2010)
Working Paper: Does a Threshold Inflation Rate Exist? Quantile Inferences for Inflation and Its Variability (2009)
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