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The nonstationarity of the consumption-income ratio: Evidence from more powerful Dickey-Fuller tests

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  • Steven Cook
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    Abstract

    In this letter the question of whether the consumption-income ratio is mean reverting is revisited. To address known problems of low power associated with previous studies, more powerful modifications of the Dickey-Fuller (DF) test are applied. The results of weighted symmetric and recursively mean-adjusted DF tests provide strong evidence of the UK consumption-income ratio being nonstationary. This finding is further supported by reduced bias estimation of the autoregressive parameter, the estimated value of ρ derived being much closer to unity than that obtained under a conventional DF test.

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    File URL: http://www.informaworld.com/openurl?genre=article&doi=10.1080/1350485032000081974&magic=repec&7C&7C8674ECAB8BB840C6AD35DC6213A474B5
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

    Volume (Year): 10 (2003)
    Issue (Month): 7 ()
    Pages: 393-395

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    Handle: RePEc:taf:apeclt:v:10:y:2003:i:7:p:393-395

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    1. Sarno, Lucio & Taylor, Mark P, 1997. "The Behaviour of Real Exchange Rates During the Post-Bretton Woods Period," CEPR Discussion Papers 1730, C.E.P.R. Discussion Papers.
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    7. Molana, H, 1991. "The Time Series Consumption Function: Error Correction, Random Walk and the Steady-State," Economic Journal, Royal Economic Society, vol. 101(406), pages 382-403, May.
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