C  Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research 2006. Published by Blackwell Publishing, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA Bulletin of Economic Research 58:4, 2006, 0307–3378 DOI: 10.1111/j.0307-3378.2006.00246.x INFLATION TARGETING AND THE STATIONARITY OF INFLATION: NEW RESULTS FROM AN ESTAR UNIT ROOT TEST Andros Gregoriou ∗ and Alexandros Kontonikas† ∗ Brunel Business School, Economics and Finance Section, Brunel University, Uxbridge, UK, and †Department of Economics, University of Glasgow, Adam SmithBuilding, Glasgow, UK ABSTRACT In this paper, we examine the time series properties of inflation in seven countries that have adopted inflation targeting. Unlike previous studies, we utilize a non-linear mean reverting adjustment mechanism for inflation and we discover that, although deviations of inflation from the target can exhibit a region of non-stationary behaviour, over- all they are stationary indicating successful targeting implementation. Keywords: ESTAR models, inflation, unit root tests JEL classification numbers: E31, C22 I. INTRODUCTION In the 1990s, a number of countries adopted explicit inflation targeting (IT) monetary policy frameworks. Over the same time period, their inflation rates became lower, less persistent and less variable (see among others Kontonikas, 2004), which are all taken as indications of successful IT implementation. In the context of these targeting regimes, the station- arity of inflation becomes fundamental for policy analysis, given the Correspondence: Andros Gregoriou, Brunel Business School, Economics and Finance Section, Brunel University, Uxbridge UB8 3PH, UK. Fax: +44 (0) 1895 269770; Email: andros.gregoriou@brunel.ac.uk. We would like to thank Virginie Boinet, George Bagdatoglou, Chris Martin and an anonymous referee for valuable comments and suggestions. The usual disclaimer applies. 309