A0367
Title: The asymmetry in the process of price formation: Threshold cointegration analysis
Authors: Emilia Gosinska - University of Lodz (Poland) [presenting]
Katarzyna Leszkiewicz-Kedzior - University of Lodz (Poland)
Aleksander Welfe - University of Lodz (Poland)
Abstract: Inflationary processes are sensitive to both supply-side and demand-side shocks as well as instabilities occurring in the markets (e.g. financial crises, pandemics). The coronavirus pandemic resulted in shocks influencing many economies significantly. This must be reflected through adjustments of the parameters of the relevant models, which calls for the appropriate development of the existing methodology. Structural breaks constitute a relatively common problem, especially in empirical studies on transforming economies, that frequently leads to the non-normal distribution of residuals and seriously hinders statistical inference. The main empirical aim is to analyse the determinants of inflation in Poland, allowing for structural breaks and nonlinearities in the long-run relationships. Since most macroeconomic variables are generated by nonstationary stochastic processes and the structural breaks are present in the sample, a nonlinear CVAR model is augmented by adding deterministic terms (representing structural breaks) to the data-generating process. Summing up, the threshold CVAR with deterministic structural breaks is a new tool for describing processes that are currently going on in the global economy. The proper explanation of the inflation processes is a prerequisite to understanding the functioning of economies suffering from exogenous shocks, among which the COVID pandemic seems to be one of the strongest.
