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http://dx.doi.org/10.13106/jafeb.2021.vol8.no10.0239

The Mean Reverting Behavior of Inflation in the Philippines  

CAMBA, Abraham C. Jr. (Department of Economics, College of Social Sciences and Development, Polytechnic University of the Philippines)
CAMBA, Aileen L. (Department of Economics, College of Social Sciences and Development, Polytechnic University of the Philippines)
Publication Information
The Journal of Asian Finance, Economics and Business / v.8, no.10, 2021 , pp. 239-247 More about this Journal
Abstract
Central Bank authorities should carefully manage inflation rate uncertainties to achieve economic growth and development not only in the short-run but also in the long-run. Since inflation is a key macroeconomic variable, an increased understanding about its behavior is undoubtedly important. Thus, paper employs unit root with breakpoints to examine the mean reverting behavior of inflation rate in the Philippines using monthly data from 2002 to 2020. Empirically, the unit root breakpoint innovational and additive outlier tests favor the stationarity or mean reverting behavior of inflation in the Philippines. Also, results of standard unit root tests, ADF, PP, GLS-Dickey-Fuller, KPSS and NP, provide strong evidence of mean reverting processes. The mean reverting behavior of inflation rate reveals that the monetary policy using inflation targeting framework has succeeded in reducing chronic inflation persistence in the Philippines. Thus, this research supports inflation targeting policy that aims to maintain general price level stability for the Philippine economy's long-term growth and development prospects. The findings of this research remain important for the central bankers for not only providing them better understanding about the behavior of inflation rate, but also helping them formulate and implement policy reforms related to money, credit and banking.
Keywords
Additive Outlier Unit Root Test; Innovational Outlier Unit Root Test; Inflation Targeting; Mean Reverting Process;
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