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Article
Publication date: 8 October 2018

Harold Glenn A. Valera, Mark J. Holmes and Gazi M. Hassan

The purpose of this paper is to consider whether or not the introduction of inflation targeting (IT) impacts on the mean-reversion properties of inflation and output growth.

Abstract

Purpose

The purpose of this paper is to consider whether or not the introduction of inflation targeting (IT) impacts on the mean-reversion properties of inflation and output growth.

Design/methodology/approach

Focusing on eight Asian countries of which four are inflation-targeters, the authors employ a two-state Markov-switching model which characterizes the behavior of inflation and output growth as regime-dependent based on periods of stationarity or non-stationarity.

Findings

In contrast to a literature that offers mixed findings, the authors find the presence of stationary inflation and output growth in one regime for all IT countries, except for South Korea which is characterized by stationary output growth in both regimes. In the cases of South Korea and Thailand, IT reduces the probability of inflation remaining in a non-stationary regime. IT increases the probability of South Korea remaining in a regime of low persistence output growth. While IT is important in understanding behavior, so are other considerations such as exchange rate volatility, as well as the Asian and global financial crises.

Originality/value

In contrast to other unit root tests of inflation and output growth, a novelty of the approach is that the authors obtain new insights in terms of two concepts of stationarity that allow for inflation and output growth to switch between stationary and non-stationary regimes (partial stationarity), or between stationary regimes of differing degrees of persistence (varied stationarity).

Details

Journal of Economic Studies, vol. 45 no. 5
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 30 September 2014

Xin Shen and Mark J. Holmes

– This paper investigates whether mean reversion holds for a panel of 16 OECD stock price indices for the period 1970 to 2011.

Abstract

Purpose

This paper investigates whether mean reversion holds for a panel of 16 OECD stock price indices for the period 1970 to 2011.

Design/methodology/approach

We employ seemingly unrelated regression (SUR)-based linear and non-linear unit root tests which are not only able to exploit the power of panel data analysis but also account for cross sectional dependencies as well as identify which panel members are stationary.

Findings

In contrast to a literature that offers mixed findings on stationarity, it was found that most of our sample is characterized as mean- or trend-reverting with approximated half-lives in the region of three to five years.

Originality/value

In contrast to other panel unit root tests of stock prices, the authors identify which individual panel members are stationary and non-stationary using a SURADF test. A further novelty of our approach is that we also develop a SUR-based panel KSS test that allows us to explore the possibility that stock prices exhibit non-linear stationarity.

Details

Studies in Economics and Finance, vol. 31 no. 4
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 12 March 2019

Cosimo Magazzino

This study aims to investigate the stationarity and convergence of CO2 emissions series in MENA countries. The stationarity and unit root properties of per capita carbon…

Abstract

Purpose

This study aims to investigate the stationarity and convergence of CO2 emissions series in MENA countries. The stationarity and unit root properties of per capita carbon dioxide (CO2) emissions series are explored by an increasing amount of studies, which use different methodologies. Examining the time series properties of energy and environmental series is crucial for both researchers and the policymakers, given the close link between energy, environment and the real economy. In fact, if energy exhibits the presence of a unit root, this suggests that this series does not revert to its equilibrium level after being hit by a shock.

Design/methodology/approach

The contribution of this work is twofold. First, to the author’s knowledge, a very little attention has been paid to the topics of stationarity and convergence of CO2 emissions in the case of Middle East and North Africa (MENA) member states, especially in a panel context. Convergence analyses of CO2 emissions for MENA countries can improve the knowledge of energy and environmental scenario of the area, giving some ideas for appropriate future policies. Second, this is the first study that jointly analyzed time series and panel data properties of emissions series for these countries.

Findings

The author finds that relative per capita CO2 emissions in the 19 MENA countries are a mixture of I(0) and I(1) processes and there is a weak evidence to support the stationarity of CO2 emissions. After having verified the presence of cross-sectional dependence in the series, the panel unit root tests in presence of cross-section dependence show strong evidence in favor of non-stationarity. In addition, after performing tests for ß-convergence, it is also found that per capita CO2 emissions are converging on average in 11 out of 19 sample’s countries, while s-convergence analysis reveals that the variance of per capita CO2 emissions decreased over time, which is an indication of convergence.

Originality/value

Important policy implications emerge from the empirical results. Sustainable environmental and energy policies rely heavily on the CO2 series’ properties. In this regard, determining whether shocks to CO2 emissions are permanent or transitory is important for setting feasible goals for sustainable environmental policies. Given that per capita CO2 emissions are essentially associated with a quality of life, the issues of their reduction have been the leading agenda in energy and environmental management over the past two decades.

Details

International Journal of Energy Sector Management, vol. 13 no. 4
Type: Research Article
ISSN: 1750-6220

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Article
Publication date: 1 June 2015

Sakiru Solarin

This paper aims to investigate, with the view to determine the effectiveness of blueprints that are designed to boost hydroelectricity use, the unit root properties of…

Abstract

Purpose

This paper aims to investigate, with the view to determine the effectiveness of blueprints that are designed to boost hydroelectricity use, the unit root properties of hydroelectricity consumption in 50 countries for the period from 1965 to 2012.

Design/methodology/approach

A newly proposed non-linear unit root test is used for the purpose of estimations.

Findings

The results show that 26 countries (which are mostly developing countries) or 52 per cent of the total sample have unit roots in their hydroelectricity consumption series.

Practical implications

The policy implication of these results is that policies associated with the enhancement of hydroelectric power use are likely to be effective in several cases, especially in the developing countries.

Originality/value

The main contribution of this paper is that we estimate the non-stationarity of hydroelectricity series within a non-linearity framework. Failure to use a non-linearity method in the presence of non-linear data-generation processes will create biased inferences and wrong policy implications.

Details

International Journal of Energy Sector Management, vol. 9 no. 2
Type: Research Article
ISSN: 1750-6220

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Book part
Publication date: 26 October 2017

Okan Duru and Matthew Butler

In the last few decades, there has been growing interest in forecasting with computer intelligence, and both fuzzy time series (FTS) and artificial neural networks (ANNs…

Abstract

In the last few decades, there has been growing interest in forecasting with computer intelligence, and both fuzzy time series (FTS) and artificial neural networks (ANNs) have gained particular popularity, among others. Rather than the conventional methods (e.g., econometrics), FTS and ANN are usually thought to be immune to fundamental concepts such as stationarity, theoretical causality, post-sample control, among others. On the other hand, a number of studies significantly indicated that these fundamental controls are required in terms of the theory of forecasting, and even application of such essential procedures substantially improves the forecasting accuracy. The aim of this paper is to fill the existing gap on modeling and forecasting in the FTS and ANN methods and figure out the fundamental concepts in a comprehensive work through merits and common failures in the literature. In addition to these merits, this paper may also be a guideline for eliminating unethical empirical settings in the forecasting studies.

Details

Advances in Business and Management Forecasting
Type: Book
ISBN: 978-1-78743-069-3

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Article
Publication date: 26 January 2010

Yevheniya Hyrina and Apostolos Serletis

The purpose of this paper is to revisit the evidence for purchasing power parity (PPP) using long, low‐frequency data (over 100 years) for 23 organization for economic…

Abstract

Purpose

The purpose of this paper is to revisit the evidence for purchasing power parity (PPP) using long, low‐frequency data (over 100 years) for 23 organization for economic co‐operation and development (OECD) countries against each of four different base currencies – the Deutsch mark, the Japanese yen, the British pound, and the US dollar.

Design/methodology/approach

The paper uses standard unit root tests and level and trend stationarity tests, and also investigates the robustness of the results to alternative testing methodologies from statistical physics, such as Lo's modified rescaled range statistic and the Hurst exponent.

Findings

The results indicate that the theory of PPP does not hold.

Originality/value

Motivated by the mixed results from previous research on the validity of the theory of PPP, the robustness of standard unit root and stationarity tests to alternative testing methodologies are investigated. In particular, the paper uses two tests from statistical physics – Lo's modified R/S statistic and the Hurst exponent.

Details

Journal of Economic Studies, vol. 37 no. 1
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 1 November 2011

Su Zhou

This paper aims to examine two hypotheses that have not been well investigated in the existing literature. One hypothesis is that the real interest rates of industrial…

Abstract

Purpose

This paper aims to examine two hypotheses that have not been well investigated in the existing literature. One hypothesis is that the real interest rates of industrial countries tend to be mean‐reverting during the current floating exchange rate period. Another hypothesis is that the real interest rates of the countries involved in forming the Euro area are more likely to behave as nonlinear stationary series than those of other industrial countries.

Design/methodology/approach

The study applies the conventional linear unit root tests and recently developed nonlinear unit root tests, as well as the tests of specifying nonlinearity in time series, to the short‐term real interest rates of 16 industrial countries.

Findings

The results of the study provide support for both hypotheses.

Practical implications

The results imply that, having adopted target‐zone type stabilization policies for years, the central banks of European Monetary Union (EMU) countries were likely to have exercised monetary policies in a nonlinear way, especially in the process of meeting the requirements of joining EMU.

Originality/value

The study provides stronger evidence than previous studies for the theory that real interest rates of industrial countries tend to have mean‐reverting behavior. The study suggests that more active monetary policies for inflation control in the floating exchange rate period may have enhanced mean reversion in real interest rates.

Details

Journal of Economic Studies, vol. 38 no. 6
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 17 May 2011

Seema Narayan and Paresh Kumar Narayan

This paper aims to investigate the integrational properties of real GDP for 125 countries.

Abstract

Purpose

This paper aims to investigate the integrational properties of real GDP for 125 countries.

Design/methodology/approach

The paper applies the Kwiatkowski et al. univariate test and a KPSS‐type univariate test that accounts for multiple structural breaks – a test procedure proposed by Carrion‐i‐Silvestre et al. The panel versions of the KPSS‐type test, proposed by Carrion‐i‐Silvestre et al. with and without structural breaks, are also applied.

Findings

The paper finds that, while univariate tests with and without structural breaks provide mixed results on persistence, the panel test suggests that shocks to national output are persistent.

Originality/value

This is a multi‐country study that focuses on both developed and developing countries and uses more recent data to provide new and comparable evidence on the persistence of output.

Details

Journal of Economic Studies, vol. 38 no. 2
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 1 January 1998

Swarna D. Dutt and Dipak Ghosh

The monetary approach to long run exchange rate determination is reexamined for the Canadian — US dollar exchange rate. We first test for non‐stationarity, and then…

Abstract

The monetary approach to long run exchange rate determination is reexamined for the Canadian — US dollar exchange rate. We first test for non‐stationarity, and then conduct a multivariate cointegration analysis to examine the validity of the monetary model in determination of exchange rates over the long run. Our results uphold the validity of the monetary approach.

Details

Studies in Economics and Finance, vol. 19 no. 1/2
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 17 October 2008

Seema Narayan and Russell Smyth

The purpose of this paper is to examine the time series properties of 26 macroeconomic variables in Papua New Guinea (PNG) over the period 1970‐2006.

Abstract

Purpose

The purpose of this paper is to examine the time series properties of 26 macroeconomic variables in Papua New Guinea (PNG) over the period 1970‐2006.

Design/methodology/approach

Both unit root and stationarity tests without a structural break and the Lagrange Multiplier (LM) unit root test with one and two structural breaks developed by Lee and Strazicich are applied to each of the 26 macroeconomic variables in PNG. Compared to popular ADF‐type endogenous unit root tests such as those proposed by Zivot and Andrews and Lumsdaine and Papell, the LM unit root test with one and two structural breaks has the advantage that it is unaffected by breaks under the null.

Findings

The unit root and stationarity tests without structural breaks find at best mixed evidence of mean reversion and/or trend reversion for most variables. This result is likely to reflect the failure of these tests to allow for structural breaks, given the power to find stationarity declines if the data contain a structural break that is ignored. When the LM unit root test with one and two structural breaks is applied, it is found that at least 23 of the 26 macroeconomic variables are trend stationary.

Originality/value

The time series properties of macroeconomic variables have important implications for several macroeconomic theories. There are, however, few studies of the time series properties of macroeconomic variables in developing countries and no comprehensive studies for any of the Pacific Island countries. This paper begins to fill this gap as the first to provide a systematic examination of the time series properties of macroeconomic variables in Paua New Guinea.

Details

International Journal of Social Economics, vol. 35 no. 12
Type: Research Article
ISSN: 0306-8293

Keywords

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