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Is the consumption-income ratio stationary? Evidence from a nonlinear panel unit root test for OECD and non-OECD countries

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  • Mario Cerrato
  • Christian de Peretti
  • Chris Stewart

Abstract

This paper applies recently developed time series and heterogeneous panel nonlinear unit root tests to 24 OECD and 33 non-OECD countries’ consumption-income ratios over the period 1951–2003. This extends evidence provided in the recent literature to consider nonlinear adjustment in time series and panel unit root tests, and substantially expands both time series and cross sectional dimensions of data analysed. We find that there is nonlinear reversion to a mean or trend for just over half of OECD countries and just under half of non-OECD countries.

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Bibliographic Info

Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2008_27.

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Date of creation: Oct 2008
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Handle: RePEc:gla:glaewp:2008_27

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Keywords: consumption-income ratio; heterogeneous panel nonlinear unit root test;

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References

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  1. Cook, Steven, 2005. "The stationarity of consumption-income ratios: Evidence from minimum LM unit root testing," Economics Letters, Elsevier, vol. 89(1), pages 55-60, October.
  2. International Monetary Fund, 1999. "Neglected Heterogeneity and Dynamics in Cross-Country Savings Regressions," IMF Working Papers 99/128, International Monetary Fund.
  3. Junsoo Lee & Mark C. Strazicich, 2004. "Minimum LM Unit Root Test with One Structural Break," Working Papers 04-17, Department of Economics, Appalachian State University.
  4. Miles, David, 1992. "Housing markets, consumption and financial liberalisation in the major economies," European Economic Review, Elsevier, vol. 36(5), pages 1093-1127, June.
  5. Mario Cerrato & Christian de Peretti & Rolf Larsson & Nicholas Sarantis, 2011. "A nonlinear panel unit root test under cross section dependence," Working Papers 2011_08, Business School - Economics, University of Glasgow.
  6. Horioka, C.Y., 1992. "The Impact of the Age structure of the Population on the Household Saving Rate in Japan : A Cointegration Analysis," ISER Discussion Paper 0287, Institute of Social and Economic Research, Osaka University.
  7. Davidson, James E H, et al, 1978. "Econometric Modelling of the Aggregate Time-Series Relationship between Consumers' Expenditure and Income in the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(352), pages 661-92, December.
  8. Modigliani, Franco, 1985. "Life Cycle, Individual Thrift and the Wealth of Nations," Nobel Prize in Economics documents 1985-1, Nobel Prize Committee.
  9. Caballero, Ricardo J, 1994. "Notes on the Theory and Evidence on Aggregate Purchases of Durable Goods," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 107-17, Summer.
  10. Hahm, Joon-Ho, 1998. "Consumption adjustment to real interest rates: Intertemporal substitution revisited," Journal of Economic Dynamics and Control, Elsevier, vol. 22(2), pages 293-320, February.
  11. Sarantis, Nicholas & Stewart, Chris, 1999. "Is the consumption-income ratio stationary? Evidence from panel unit root tests," Economics Letters, Elsevier, vol. 64(3), pages 309-314, September.
  12. Molana, H, 1989. "Wealth Allocation, Capital Gains and Private Expenditure in the UK," Scottish Journal of Political Economy, Scottish Economic Society, vol. 36(3), pages 209-37, August.
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Cited by:
  1. Elmi, Zahra (Mila) & Ranjbar, Omid, 2013. "Nonlinear adjustment to the mean reversion of consumption–income ratio," Economic Modelling, Elsevier, vol. 35(C), pages 477-480.
  2. Sadiye Baykara & Erdinç Telatar, 2012. "The Stationarity Of Consumption-Income Ratios With Nonlinear And Asymmetric Unit Root Tests: Evidence From Fourteen Transition Economies," Hacettepe University Department of Economics Working Papers 20129, Hacettepe University, Department of Economics.

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