Finance and Financial Management Commons^™

Emerging Economies, Turnover Rates And Inflation Variability: A Comparison Of Generalized Maximum Likelihood And Sur Models, Hermann Sintim-Aboagye

Department of Accounting and Finance Faculty Scholarship and Creative Works

Theoretical exposition and empirical evidence in central bank independence (CBI) literature confirm an inverse relationship between inflation and measures of CBI mostly in developed economies. Based on this ex ante information on CBI-inflation tradeoff, this paper proposes two functional forms for the diagonal and off diagonal elements in the residual covariance matrix in the estimation process. The proposed functional forms are used in a generalized maximum likelihood and then in a generalized least squares (GLS) (with the restricted covariance matrix) framework for the empirical test. The results are compared to the outcome of an SUR model (unrestricted). The tests involve …