Steel consumption and economic activity in the UK: The integration and cointegration debate
AbstractThis research examines whether a long-run stationary equilibrium relationship holds between economic activity and the consumption of crude steel within the UK. Using the theory of fractionally integrated and cointegrated processes, and allowing for the possibility that the equilibrium path changes abruptly at occasional points in time, it is possible to determine if steel consumption and economic activity follow a common stochastic trend or whether the two series randomly drift apart over time. Evidence is found to support such a long term relationship. This result is at odds with the conclusions drawn by previous researchers in the area. The reason for this difference may be due to these researchers concentrating only on I(0) and I(1) specifications, without consideration of fractional possibilities and also to a failure to account for structural breaks in the equilibrium relationship. Such conclusions are made within the framework of the ARFIMA methodology that yields reliable inferences on the degree of fractional integration and cointegration. Critical values for fractional contegration with an ARFIMA model in the presence of structural breaks are also derived in this paper.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Resources Policy.
Volume (Year): 36 (2011)
Issue (Month): 2 (June)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/30467
Steel consumption Intensity of use Fractional integration Fraction cointegration ARFIMA;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Luis A. Gil-Alana, 2003.
"Testing of Fractional Cointegration in Macroeconomic Time Series,"
Faculty Working Papers
09/03, School of Economics and Business Administration, University of Navarra.
- Luis A. Gil-Alana, 2003. "Testing of Fractional Cointegration in Macroeconomic Time Series," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(4), pages 517-529, 09.
- Auty, Richard, 1985. "Materials intensity of GDP: Research issues on the measurement and explanation of change," Resources Policy, Elsevier, vol. 11(4), pages 275-283, December.
- Caporale, Guglielmo Maria & Gil-Alana, Luis A., 2004. "Fractional cointegration and tests of present value models," Review of Financial Economics, Elsevier, vol. 13(3), pages 245-258.
- Labson B. Stephen & Crompton Paul L., 1993. "Common Trends in Economic Activity and Metals Demand: Cointegration and the Intensity of Use Debate," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 147-161, September.
- Stock, James H, 1987. "Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors," Econometrica, Econometric Society, vol. 55(5), pages 1035-56, September.
- Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
- Smith, Anthony A, Jr & Sowell, Fallaw & Zin, Stanley E, 1997.
"Fractional Integration with Drift: Estimation in Small Samples,"
Springer, vol. 22(1), pages 103-16.
- Tony Smith & Fallaw Sowell & Stanley Zin, . "Fractional integration with Drift: Estimation in Small Samples," GSIA Working Papers 22, Carnegie Mellon University, Tepper School of Business.
- A. J. Abbott & K. A. Lawler & C. Armistead, 1999. "The UK demand for steel," Applied Economics, Taylor and Francis Journals, vol. 31(11), pages 1299-1302.
- Baillie, Richard T., 1996. "Long memory processes and fractional integration in econometrics," Journal of Econometrics, Elsevier, vol. 73(1), pages 5-59, July.
- Doornik Jurgen A & Ooms Marius, 2004. "Inference and Forecasting for ARFIMA Models With an Application to US and UK Inflation," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 8(2), pages 1-25, May.
- Granger, C. W. J., 1980. "Long memory relationships and the aggregation of dynamic models," Journal of Econometrics, Elsevier, vol. 14(2), pages 227-238, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).
If references are entirely missing, you can add them using this form.