scholarly journals Characterizing growth instability: new evidence on unit roots and structural breaks in countries’ long run trajectories

2021 ◽  
Author(s):  
Emanuele Russo ◽  
Neil Foster-McGregor
Keyword(s):  
Unit Root ◽  
Structural Breaks ◽  
Structural Changes ◽  
Alternative Hypothesis ◽  
Unit Root Test ◽  
Unit Roots ◽  
Finite Sample ◽  
Aggregate Shocks ◽  
Long Run ◽  
Finite Sample Properties

AbstractIn this paper we investigate whether long run time series of income per capita are better described by a trend-stationary model with few structural changes or by unit root processes in which permanent stochastic shocks are responsible for the observed growth discontinuities. For a group of advanced and developing countries in the Maddison database, we employ a unit root test that allows for an unspecified number of breaks under the alternative hypothesis (up to some ex ante determined maximum). Monte Carlo simulations studying the finite sample properties of the test are reported and discussed. When compared with previous findings in the literature, our results show less evidence against the unit root hypothesis. We find even fewer rejections when relaxing the assumption of Gaussian shocks. Our results are broadly consistent with the implications of evolutionary macro models which posit frequent growth shifts and fat-tailed distribution of aggregate shocks.

Convergence in per capita carbon footprint and ecological footprint for G7 countries: Evidence from panel Fourier threshold unit root test

2021 ◽  
pp. 0958305X2110114
Author(s):  
Veli Yilanci ◽  
Muhammed Sehid Gorus ◽  
Sakiru Adebola Solarin
Keyword(s):  
Unit Root ◽  
Structural Breaks ◽  
Structural Changes ◽  
Unit Root Test ◽  
G7 Countries ◽  
Convergence Hypothesis ◽  
International Climate ◽  
Per Capita ◽  
Nonlinear Behaviors ◽  
Nonlinear Unit Root Tests

This paper aims to explore the convergence of per capita carbon and ecological footprints in G7 countries during 1961–2016. For this purpose, we propose a new unit root test in the panel setting–the panel Fourier threshold unit root test. This test takes into consideration both multiple smooth structural changes and nonlinearity. According to the literature, the power of the nonlinear unit root tests is reduced in the case of ignoring structural breaks. Therefore, we expect to get more reliable empirical findings by utilizing this methodology. The empirical results of this paper show that these series have nonlinear behaviors for the period 1961–2016. Furthermore, they demonstrate that the absolute convergence hypothesis is valid in G7 countries for both regimes. Thus, governments can conduct common environmental policies, including international climate summits and agreements, instead of national-based policies to mitigate environmental deterioration in their countries.

UNIT ROOTS, TREND BREAKS, AND TRANSITORY DYNAMICS: A MACROECONOMIC PERSPECTIVE

2002 ◽  
Vol 6 (5) ◽  
pp. 614-632 ◽  
Author(s):  
Lutz Kilian ◽  
Lee E. Ohanian
Keyword(s):  
Unit Root ◽  
Null Hypothesis ◽  
High Probability ◽  
Stationary Process ◽  
Alternative Hypothesis ◽  
Unit Roots ◽  
Critical Values ◽  
Finite Sample ◽  
Potential Pitfall ◽  
Trend Breaks

It is common to interpret rejections of the unit-root null hypothesis in favor of a trend stationary process with possible trend breaks as evidence that the data are better characterized as stationary about a broken trend. This interpretation is valid only if the model postulated under the alternative hypothesis is the only plausible alternative to the model postulated under the null. We argue that there are economically plausible models that are not well captured under either the null hypothesis or the alternative hypothesis of these tests. We show that applied researchers who ignore this possibility are likely to reject the unit-root null with high probability in favor of a trend stationary process with possible breaks. Our evidence shows that this potential pitfall is both economically relevant and quantitatively important. We explore the extent to which applied users may mitigate inferential errors by using finite-sample and bootstrap critical values.

Fiscal sustainability test: The case of Turkey

2016 ◽  
Author(s):  
Mücahit Aydın ◽  
Veli Yılancı
Keyword(s):  
Unit Root ◽  
Structural Breaks ◽  
Alternative Hypothesis ◽  
Unit Root Test ◽  
Fiscal Sustainability ◽  
Fiscal Policies ◽  
Test Results ◽  
Turkish Economy ◽  
Income Ratio

The main purpose of the study is to test the sustainability of fiscal policies for Turkish economy using quarterly series over the period 2000:1 to 2015:2. By considering Kremers (1989) sustainability condition we test the debt-income ratio by using Lee-Strazicich unit root test which allow structural breaks under both null and alternative hypothesis. The test results we obtained show that the series has a unit root which indicates the un-sustainability of public debt.Keywords: Fiscal policies, Fiscal Sustainability, Unit root test  

scholarly journals Unit Roots in Time Series with Changepoints

2017 ◽  
Vol 6 (6) ◽  
pp. 127
Author(s):  
Ed Herranz ◽  
James Gentle ◽  
George Wang
Keyword(s):  
Time Series ◽  
Unit Root ◽  
Null Hypothesis ◽  
Structural Changes ◽  
Linear Trend ◽  
Unit Root Test ◽  
Unit Roots ◽  
Cointegration Analysis ◽  
Unit Root Tests ◽  
Standard Unit

Many financial time series are nonstationary and are modeled as ARIMA processes; they are integrated processes (I(n)) which can be made stationary (I(0)) via differencing n times. I(1) processes have a unit root in the autoregressive polynomial. Using OLS with unit root processes often leads to spurious results; a cointegration analysis should be used instead. Unit root tests (URT) decrease spurious cointegration. The Augmented Dickey Fuller (ADF) URT fails to reject a false null hypothesis of a unit root under the presence of structural changes in intercept and/or linear trend. The Zivot and Andrews (ZA) (1992) URT was designed for unknown breaks, but not under the null hypothesis. Lee and Strazicich (2003) argued the ZA URT was biased towards stationarity with breaks and proposed a new URT with breaks in the null. When an ARMA(p,q) process with trend and/or drift that is to be tested for unit roots and has changepoints in trend and/or intercept two approaches that can be taken: One approach is to use a unit root test that is robust to changepoints. In this paper we consider two of these URT's, the Lee-Strazicich URT and the Hybrid Bai-Perron ZA URT(Herranz, 2016.)  The other approach we consider is to remove the deterministic components with changepoints using the Bai-Perron breakpoint detection method (1998, 2003), and then use a standard unit root test such as ADF in each segment. This approach does not assume that the entire time series being tested is all I(1) or I(0), as is the case with standard unit root tests. Performances of the tests were compared under various scenarios involving changepoints via simulation studies.  Another type of model for breaks, the Self-Exciting-Threshold-Autoregressive (SETAR) model is also discussed.

scholarly journals THE IMPACT OF PERSISTENT CYCLES ON ZERO FREQUENCY UNIT ROOT TESTS

2013 ◽  
Vol 29 (6) ◽  
pp. 1289-1313 ◽  
Author(s):  
Tomás del Barrio Castro ◽  
Paulo M.M. Rodrigues ◽  
A.M. Robert Taylor
Keyword(s):  
Unit Root ◽  
Unit Root Test ◽  
American Statistical Association ◽  
Unit Root Tests ◽  
Statistical Association ◽  
Finite Sample ◽  
Finite Sample Properties ◽  
Augmented Dickey Fuller ◽  
Frequency Unit ◽  
The Impact

In this paper we investigate the impact of persistent (nonstationary or near nonstationary) cycles on the asymptotic and finite-sample properties of standard unit root tests. Results are presented for the augmented Dickey–Fuller (ADF) normalized bias and t-ratio-based tests (Dickey and Fuller, 1979, Journal of the American Statistical Association 745, 427–431; Said and Dickey, 1984; Biometrika 71, 599–607). the variance ratio unit root test of Breitung (2002, Journal of Econometrics 108, 343–363), and the M class of unit-root tests introduced by Stock (1999, in Engle and White (eds.), A Festschrift in Honour of Clive W.J. Granger) and Perron and Ng (1996, Review of Economic Studies 63, 435–463). We show that although the ADF statistics remain asymptotically pivotal (provided the test regression is properly augmented) in the presence of persistent cycles, this is not the case for the other statistics considered and show numerically that the size properties of the tests based on these statistics are too unreliable to be used in practice. We also show that the t-ratios associated with lags of the dependent variable of order greater than two in the ADF regression are asymptotically normally distributed. This is an important result as it implies that extant sequential methods (see Hall, 1994, Journal of Business & Economic Statistics 17, 461–470; Ng and Perron, 1995, Journal of the American Statistical Association 90, 268–281) used to determine the order of augmentation in the ADF regression remain valid in the presence of persistent cycles.

scholarly journals Financial Liberalization and the Stability of Short-run and Long-run Money Demand in Iran

2013 ◽  
Vol 5 (1) ◽  
pp. 24-37
Author(s):  
Maryam Zare
Keyword(s):  
Money Demand ◽  
Structural Breaks ◽  
Structural Changes ◽  
Financial Liberalization ◽  
Time Series Data ◽  
Structural Break ◽  
Unit Root Test ◽  
Series Data ◽  
Long Run ◽  
Demand Stability

Money demand is one of the most important macro-economic variables that could be of great importance to the economic prospect of a country. Therefore, awareness on how this function behaves and by adoption of appropriate economic policies, it is possible, by and large, to avoid the emergence of disorder. The present study, employing the annual time series data related to Iranian economy during 1973-2009, tries to investigate possible relationships between financial liberalization and money demand stability in Iran, in the form of 4 models. To do so, Zivot-Andrews (1992) Unit Root Test was applied in order to clarify endogenous structural changes and Gregory-Hansen (1996) Cointegration Test was administered to investigate the long-run relationships between financial liberalization and money demand stability in Iran, with an emphasis on the structural breaks during the period under study. The results of the study show that by taking the structural break into consideration, there is a significant short and long run relationship between financial liberalization and money demand stability in Iran.

scholarly journals The Effects of Structural Breaks on Energy Resources in the Long Run. Evidence from the Last Two Oil Price Crashes before COVID-19

Designs ◽  
2020 ◽  
Vol 4 (4) ◽  
pp. 49
Author(s):  
Pablo Cansado-Bravo ◽  
Carlos Rodríguez-Monroy
Keyword(s):  
Unit Root ◽  
Structural Breaks ◽  
Structural Changes ◽  
Supply And Demand ◽  
Energy System ◽  
Fuel Oil ◽  
Future Price ◽  
Low Carbon ◽  
Unit Root Testing ◽  
Long Run

The course of events since 2014, including the worldwide pandemic of a coronavirus disease, have shown that oil market fundamentals have not always been clearly anticipated and that additional external factors, rather than those related to supply and demand, do play important roles in signaling future price changes. Within that complex setting, this study examined the influences of structural breaks on the long-term properties of Brent crude oil, gasoil, low-sulfur fuel oil, natural gas, and coal over the period 2002–2018. In an effort to assess the impacts of these structural changes, we identified time points at which structural break changes occurred and unit root properties using a representative variety of unit root testing alternatives. From the estimation results, we observed that only fuel oil and national balancing point (NBP) prices show evidence of mean-reverting behavior, suggesting that shocks to these two markets are short-lived when allowing for structural breaks. Although the idea of market forces bringing the non-renewable markets to their equilibrium in the long run makes the role of policy-making more challenging, it highlights the importance of the policy mix in the transition to a low-carbon energy system.

scholarly journals Testing of the crowding out effect for Turkey

2016 ◽  
Author(s):  
Veli Yılancı ◽  
Mücahit Aydın
Keyword(s):  
Private Sector ◽  
Unit Root ◽  
Structural Breaks ◽  
Public Investment ◽  
Unit Root Test ◽  
Crowding Out ◽  
Public Investments ◽  
Private Sector Investment ◽  
Long Run ◽  
Cointegration Tests

In this study, we test the effect of public investment on private sector investment for Turkey for the period 1980-2014. There can be three different types of relationship between them. Public investment can have crowding in effect on private sector investment. That is, an increase in public investments creates same way change in private sector investments. Public investment can have crowding out effect on private sector investment. In other words, an increase in public investments decreases private sector investments Public investment can have no effect on private sector investment. We first test the existence of the relationship between them by using recently introduced unit root and cointegration tests. We test the stationarity of the variables by using Kapetanios (2005) unit root test and test the long run relationship by employing Maki (2009) cointegration test. Both of the tests allow multiple structural breaks which determined endogenously. Since we find the long run relationship between public and private sector investments we examine the type of the effect using FMOLS cointegrating model which supports evidence for the crowding-in effect.    Keywords: Crowding Out Effect, Cointegration, Structural Breaks

scholarly journals Analysis of the Determinant Factors of the Historical Development of Air Transport: An Empirical Application to Turkey

2018 ◽  
Vol 13 (3) ◽  
pp. 74-90 ◽  
Author(s):  
Kasim Kiraci
Keyword(s):  
Unit Root ◽  
Historical Development ◽  
Structural Breaks ◽  
Structural Changes ◽  
Unit Root Test ◽  
Air Transport ◽  
Empirical Application ◽  
Determinant Factors ◽  
The One ◽  
At Home

Abstract The aim of this study was to empirically examine the development of air transport in Turkey in the period between 1980 and 2015. The study intended, within its scope, to determine the developments experienced in air transport in Turkey and the probable causes of the structural changes. Moreover, it was aimed at highlighting the years in which the structural changes in air transport were realized. In line with this objective, the one-break Zivot Anderews (1992) unit root test, the two-break Clemente-Montañés-Reyes (1998) unit root test, and the one-break and two-break LM were applied to the domestic and international air transport data of the 1980-2015 period. The results of the study show that there were substantial economic and political developments both at home and abroad in the years that the significant structural breaks that affect air transport took place.

scholarly journals Dynamic Relationship Between Real Export, Real Import, Real Exchange Rate, Labor Force and Real Gross Domestic Product in Malaysia

2019 ◽  
Vol 10 (5) ◽  
pp. 20
Author(s):  
Emilda Hashim ◽  
Norimah Rambeli ◽  
Asmawi Hashim ◽  
Norasibah Abdul Jalil ◽  
Shahrun Nizam Abdul Aziz ◽  
...  
Keyword(s):  
Exchange Rate ◽  
Labor Force ◽  
Open Economy ◽  
Unit Root ◽  
Correction Term ◽  
Unit Root Test ◽  
Real Effective Exchange Rate ◽  
Global Changes ◽  
Real Gdp ◽  
Long Run

This study examined short run and long run relationship between endogenous and exogenous variables. Specifically, it studied the relationship between real export, real import, labor force participation and real effective exchange rate (REER) and real GDP in Malaysia from 1988 to 2017. These variables were tested in various tests, namely, unit root test, granger causality test, vector autoregressive (VAR), Johansen Juselius test and Error Correction Term (ECT). The result revealed that all variables were non-stationary at the level form and stationary at first difference in ADF unit root test. The findings also exhibited the existence of bilateral relationships between real export and real GDP, real import and real GDP, as well as labor and real GDP. Nonetheless, there were no relationship found between REER and real GDP. On the other hand, in VAR, the lag optimum was lag 10 because it indicated the smallest value of AIC. Moreover, for Johansen Juselius cointegration test, it showed two cointegrated vector at both, 5% and 1%, level in trace test. In addition, Max-Eigen value test indicated two cointegrated vector at 0.05 and one cointegrated vector at 0.01. As for the Wald test, there were long run cointegration relationship between real GDP and its determinants, namely real export, real import, labor and REER. Apparently, Malaysia, as a small open economy, has relied heavily on foreign trade. Consequently, our domestic economic performance is susceptible to the changes in international markets and exchange rate. Therefore, suitable international policy implementation is vital to ensure Malaysian economy will be able to adjust to current global changes.

Sign in / Sign up

Export Citation Format

Share Document