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


  • Mario Cerrato
  • Christian de Peretti
  • Chris Stewart


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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  • Mario Cerrato & Christian de Peretti & Chris Stewart, 2008. "Is the consumption-income ratio stationary? Evidence from a nonlinear panel unit root test for OECD and non-OECD countries," Working Papers 2008_27, Business School - Economics, University of Glasgow.
  • Handle: RePEc:gla:glaewp:2008_27

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    References listed on IDEAS

    1. Mario Cerrato & Christian De Peretti & Nick Sarantis, 2007. "A nonlinear panel unit root test under cross section dependence," Documents de recherche 07-12, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    2. Junsoo Lee & Mark C. Strazicich, 2013. "Minimum LM unit root test with one structural break," Economics Bulletin, AccessEcon, vol. 33(4), pages 2483-2492.
    3. Modigliani, Franco, 1986. "Life Cycle, Individual Thrift, and the Wealth of Nations," American Economic Review, American Economic Association, vol. 76(3), pages 297-313, June.
    4. 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.
    5. 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 209-237, August.
    6. 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 107-117, Summer.
    7. 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.
    8. Haque, N. U. & Pesaran, M. H. & Sharma, Sunil, 1999. "Neglected Heterogeneity and Dynamics in Cross-country Savings Regressions," Cambridge Working Papers in Economics 9904, Faculty of Economics, University of Cambridge.
    9. Miles, David, 1992. "Housing markets, consumption and financial liberalisation in the major economies," European Economic Review, Elsevier, vol. 36(5), pages 1093-1127, June.
    10. 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.
    11. 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 661-692, December.
    12. 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.
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    Cited by:

    1. 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.
    2. 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.
    3. 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.

    More about this item


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

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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