Politická ekonomie 2022, 70(4):421-439 | DOI: 10.18267/j.polek.1362

Are Inflation Rates Stationary in the Western Balkan Countries? Evidence from Unit Root Tests

Saša Obradović ORCID...a, Nemanja Lojanica ORCID...a
a Faculty of Economics, University of Kragujevac, Kragujevac, Serbia

Monitoring of inflation rate dynamics is one of the most important tasks in order to identify the current economic conditions of the observed countries. The aim of this study is to examine the unit root properties of inflation in the Western Balkan countries. It also investigates the existence of structural breaks and nonlinearity. The time horizon encompasses the period 2006Q1-2020Q2. The results suggest that the inflation in Albania and Montenegro manifests a nonstationary process and structural breaks. The macroeconomic shocks will have more persistent effects on the inflation rate if it is characterized by nonstationarity. The inflation rates of Serbia and Bosnia and Herzegovina are characterized by nonlinear mean reverting behaviour. This implies less costly implementation of the proclaimed monetary strategy.

Keywords: Inflation, unit root, nonlinearity, structural break, nonstationarity
JEL classification: C22, E31, O52

Received: March 13, 2021; Revised: April 12, 2022; Accepted: April 21, 2022; Published: September 15, 2022  Show citation

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Obradović, S., & Lojanica, N. (2022). Are Inflation Rates Stationary in the Western Balkan Countries? Evidence from Unit Root Tests. Politická ekonomie, 70(4), 421-439. doi: 10.18267/j.polek.1362
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