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


  • Steven Cook


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.

Suggested Citation

  • Steven Cook, 2003. "The nonstationarity of the consumption-income ratio: Evidence from more powerful Dickey-Fuller tests," Applied Economics Letters, Taylor & Francis Journals, vol. 10(7), pages 393-395.
  • Handle: RePEc:taf:apeclt:v:10:y:2003:i:7:p:393-395 DOI: 10.1080/1350485032000081974

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    References listed on IDEAS

    1. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
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    6. Drobny, A & Hall, S G, 1989. "An Investigation of the Long-run Properties of Aggregate Non-durable Consumers' Expenditure in the United Kingdom," Economic Journal, Royal Economic Society, vol. 99(396), pages 454-460, June.
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    9. King, Robert G. & Plosser, Charles I. & Stock, James H. & Watson, Mark W., 1991. "Stochastic Trends and Economic Fluctuations," American Economic Review, American Economic Association, vol. 81(4), pages 819-840, September.
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