Seasonal and long run fractional integration in the Industrial Production Index of some Latin American countries

Abstract

In this article we propose a new approach that permits us to simultaneously test unit and fractional roots at the long run and the seasonal frequencies. We examine the industrial production indexes in four Latin American countries (Brazil, Argentina, Colombia and Mexico), using new statistical tools based on seasonal and non-seasonal long memory processes. Results show that the root at the long run or zero frequency plays a much more important role than the seasonal one. Nevertheless, in the cases of Brazil and Argentina a component of long memory behaviour is also present at the seasonal structure, indicating that shocks modify the seasonal structure for a long period. Policy makers should thus pay attention to this result in choosing the optimal economic policy.