Spurious Persistence and Unit Roots due to Seasonal Difierencing: The Case of In∞ation Rates ⁄

Abstract

Studying annual growth rates (seasonal difierences) in case of seasonal data produces much more persistence, autocorrelation and stronger evidence in favour of a unit root than analyzing seasonal growth rates (ordinary difierences). First, this statement is quantifled theoretically. Second, it is supported experimentally with simulations, and, flnally, it is empirically illustrated with quarterly GDP de∞ators from 7 European economies.