Journal of Economic Research (Tahghighat- E- Eghtesadi)

Journal of Economic Research (Tahghighat- E- Eghtesadi)

Analysis of Non-linearities in Inflation Persistence of Oil-Exporting Countries Using Dynamic Random Effects Ordered Probit (DREOP) Model

Document Type : Research Paper

Authors
Hossein Amiri 1
Seyed Jafar Jamali 2
Ahmad Molabahrami 3
1 Assistant Professor, Faculty of Economics, Kharazmi University, Iran, Tehran
2 MA in Economics, Faculty of Economics, Allameh Tabataba'i University
3 Ph.D. in Economics, University of Urmia
10.22059/jte.2017.63657
Abstract
Concentrating on inflation persistence, this paper explores inflation dynamics in 12 oil-exporting countries with Dynamic Non-linear Panel models in 2002-2014. According to results, the level of inflation persistence in linear models is higher than the non-linear ones, so that based on OLS, fixed effects, and Arellano-Bond approaches, it is 0. 727, 0. 655, and 0. 59 respectively. With regard to the results, the estimated sign of inflation persistence is positive and statistically significant; demonstrating that current level of inflation would influence the future level of it. It can be also observed from the paper’s results that in comparison to ordered models, inflation persistence is higher in linear models. Considering heterogeneity and initial conditions, i. e. each country’s initial observed level of inflation, would make the estimations better. Empirical results demonstrate the low possibility of large jumps in inflation, and it tends to move toward higher, rather lower levels. The results reveal that the bigger the gap between existing inflation rate and target rate, the more the tendency of inflation to self-correct and move toward the desired level. Generally, the results show that inflation persistence is non-linear, and it varies depending on range of inflation rate. This means that inflation-stabilizing policies in the short-run would have long-run effects.
JEL Classification:E31, C23
Keywords
Non-linear Inflation
Oil-exporting Countries
Dynamic Random Effects Ordered Probit Model
Inflation Persistence
Heterogeneity and Initial Conditions

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  • Receive Date 06 February 2017
  • Revise Date 21 May 2017
  • Accept Date 07 October 2017