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The role of permanent and transitory shocks in explaining international health expenditures

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  • Paresh Kumar Narayan

    (School of Accounting, Economics and Finance, Faculty of Business and Law, Deakin University, Burwood, Australia)

  • Seema Narayan

    (School of Economics, Finance and Marketing, Royal Melbourne Institute of Technology, Melbourne, Australia)

Abstract

While there is a growing literature that examines the issue of cointegration (co-movement over the long run) among health expenditures, there are no studies that examine the issue of common cycles (co-movement over the short run) among health expenditures. We undertake a multivariate variance decomposition analysis of per capita health expenditures of the USA, the UK, Japan, Canada, and Switzerland based on a common-trend-common-cycle restriction framework, to examine the relative importance of permanent and transitory innovations in explaining variations in per capita health expenditures in each of the five countries. Our main finding is that transitory shocks are more important in explaining per capita health expenditures in the UK, Japan, and Switzerland, while permanent shocks dominate variations in per capita health expenditures in the USA and Canada over short horizons. Copyright © 2007 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/hec.1316
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

Volume (Year): 17 (2008)
Issue (Month): 10 ()
Pages: 1171-1186

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Handle: RePEc:wly:hlthec:v:17:y:2008:i:10:p:1171-1186

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749

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References

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  1. Issler, Joao Victor & Vahid, Farshid, 2001. "Common cycles and the importance of transitory shocks to macroeconomic aggregates," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 449-475, June.
  2. Narayan, Paresh Kumar, 2006. "Examining structural breaks and growth rates in international health expenditures," Journal of Health Economics, Elsevier, vol. 25(5), pages 877-890, September.
  3. Alain Hecq & Franz Palm & Jean-Pierre Urbain, 2002. "Separation, Weak Exogeneity, And P-T Decomposition In Cointegrated Var Systems With Common Features," Econometric Reviews, Taylor and Francis Journals, vol. 21(3), pages 273-307.
  4. Vahid, F & Engle, Robert F, 1993. "Common Trends and Common Cycles," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(4), pages 341-60, Oct.-Dec..
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  11. Alain Hecq & Franz Palm & Jean-Pierre Urbain, 2001. "Testing for Common Cyclical Features in Var Models with Cointegration," CESifo Working Paper Series 451, CESifo Group Munich.
  12. Don Harding & Adrian Pagan, 2000. "Disecting the Cycle: A Methodological Investigation," Econometric Society World Congress 2000 Contributed Papers 1164, Econometric Society.
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  16. Hecq, Alain & Palm, Franz C. & Urbain, Jean-Pierre, 2000. "Permanent-transitory decompositions in VAR models with cointegration and common cycles," Open Access publications from Maastricht University urn:nbn:nl:ui:27-5777, Maastricht University.
  17. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
  18. Clemente, Jesus & Marcuello, Carmen & Montanes, Antonio & Pueyo, Fernando, 2004. "On the international stability of health care expenditure functions: are government and private functions similar?," Journal of Health Economics, Elsevier, vol. 23(3), pages 589-613, May.
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  22. Jewell, Todd & Lee, Junsoo & Tieslau, Margie & Strazicich, Mark C., 2003. "Stationarity of health expenditures and GDP: evidence from panel unit root tests with heterogeneous structural breaks," Journal of Health Economics, Elsevier, vol. 22(2), pages 313-323, March.
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Citations

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Cited by:
  1. Andrea Leiter & Engelbert Theurl, 2012. "The convergence of health care financing structures: empirical evidence from OECD-countries," The European Journal of Health Economics, Springer, vol. 13(1), pages 7-18, February.
  2. Paresh Kumar Narayan & Stephan Popp, 2009. "A Nonlinear Approach to Testing the Unit Root Null Hypothesis: An Application to International Health Expenditures," Economics Series 2009_10, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  3. Anurag Sharma & Preety Srivastava, 2011. "Does Disaggregation Affect The Relationship Between Health Care Expenditure And Gdp? An Analysis Using Regime Shifts," Australian Economic Papers, Wiley Blackwell, vol. 50(1), pages 27-39, 03.
  4. Vasudeva Murthy, 2012. "A Time-Series Investigation of the U.S. Real Health Expenditure: Evidence from Nonlinear Unit Root Tests," International Advances in Economic Research, Springer, vol. 18(4), pages 429-438, November.
  5. Narayan, Paresh Kumar & Narayan, Seema & Smyth, Russell, 2011. "Energy consumption at business cycle horizons: The case of the United States," Energy Economics, Elsevier, vol. 33(2), pages 161-167, March.
  6. Paresh Kumar Narayan, 2010. "Modelling health and output at business cycle horizons for the USA," Health Economics, John Wiley & Sons, Ltd., vol. 19(7), pages 872-880.

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