A threshold in inflation dynamics: evidence from emerging countries

Using monthly data over the period January 1976–November 2002, the present paper detects significant threshold non-linearities in the inflation rates of three emerging countries, namely India, Singapore and South Africa. A two-regime self-exciting threshold autoregressive (SETAR) model of inflation, constituting a significant improvement over the corresponding linear AR model, is estimated for these countries. Singapore is shown to have a much lower implied equilibrium inflation rate than India, while there is a possibility of seasonal inflation equilibria for South Africa.