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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.

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.

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.

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.

The purpose of this paper is to report on a sequential three-stage analysis of inflation persistence using monthly data from 11 inflation targeting (IT) countries and, for comparison, the USA, a non-IT country with a history of credible monetary policy.

First, the authors estimate inflation persistence in a rolling-window fractional-integration setting using the semiparametric estimator suggested by Phillips (2007). Second, the authors use tests for unknown structural breaks as a means to identify effects of the regime switch and the global financial crisis on inflation persistence. The authors use the sequences of estimated persistence measures from the first stage as dependent variables in the Bai and Perron (2003) structural break tests. Finally, the authors reapply the Phillips (2007) estimator to the subsamples defined by the breaks.

Four countries (Canada, Iceland, Mexico, and South Korea) experience a structural break in inflation persistence that coincide with the implementation of the IT regime, and three IT countries (Sweden, Switzerland, and the UK), as well as the USA experience a structural break in inflation persistence that coincides with the global financial crisis.

The authors find that in most cases the estimates of inflation persistence switch from mean-reversion nonstationarity to mean-reversion stationarity.

Monetary policy implications differ between pre- and post-global financial crisis.

Global financial crisis affected the persistence of inflation rates.

First paper to consider the effect of the global financial crisis on inflation persistence.

This paper aims to model the relationship between oil price and six major agricultural commodity prices using monthly data from January 1997 to December 2016.

The authors use both the linear autoregressive distributed lag by Pesaran et al. (2001) and the nonlinear autoregressive distributed lag by Shin et al. (2014), and they also account for structural breaks using the Bai and Perron (2003) test that allows for multiple structural changes in regression models.

These findings are discernible from the authors’ analyses. First, the linear analysis indicates a significant positive effect of oil prices on the agricultural commodity prices, which supports evidence on the non-neutrality hypothesis. Second, oil price asymmetries seem to matter more when dealing with agricultural commodity prices, except for groundnut. Third, it may be necessary to pre-test for structural breaks when modelling the relationship between oil price and agricultural prices regardless of the commodity being analysed. Fourth, the asymmetric effect for the agricultural commodity prices is non-neutral to oil prices, except for rice in the case of structural breaks.

This paper contributes to the on-going debate on the oil–agricultural commodity nexus using the recent technique of asymmetry and also considering the role structural breaks play in the relationship between oil price and agricultural commodity prices.

The purpose of this paper is to examine the pricing efficiency of the Malaysian crude palm oil (CPO) market before and after the structural break. This study uses the daily closing price of CPO and CPO futures (CPO-F) for the period ranging from June 2009 to August 2016 while taking structural breaks into account.

In this study, symmetric and asymmetric long-run relationship model are employed, such as the Johansen cointegration, VECM, TAR and M-TAR models, to examine the impact of structural breaks on the pricing efficiency of the Malaysian CPO market.

This finding establish that Malaysian CPO price is efficient before and after the structural break. The consistent efficiency of the Malaysian CPO market supports the trading of the CPO-F in Globex and the use of Malaysian CPO pricing as the reference price. This study establishes that a structural break in the Malaysian CPO price series does not affect the pricing efficiency of the market.

This study shows that using Malaysian CPO price as a reference price is sustainable even in the event of a structural break. Therefore, market participants in the Malaysian CPO market have less to worry about the CPO price as it supports the weak form of efficiency. Price deviation in the short run may not lead to arbitrage profit as transaction cost may not be covered.

This study implies that if there is distortion in the price due to shocks, both manufacturers and producers need to hedge their positions in the futures market (subject to their positions in the underlying market). By entering into the futures market, pricing is locked in advance; hence, price risk is eliminated. Such a distortion could also affect the efficiency of the CPO price, therefore this study also addresses the issue of efficiency of the local CPO market.

Previous studies on Malaysian CPO pricing efficiency did not take the effect of structural break into consideration, making it difficult for these studies to show consistency in the efficiency of the Malaysian CPO market.

Hashem Pesaran has made many seminal contributions, among others, in the time series econometrics estimation and forecasting under structural break, see Pesaran and Timmermann (2005, 2007), Pesaran, Pettenuzzo, and Timmermann (2006), and Pesaran, Pick, and Pranovich (2013). In this chapter, the authors focus on the estimation of regression parameters under multiple structural breaks with heteroskedasticity across regimes. The authors propose a combined estimator of regression parameters based on combining restricted estimator under the situation that there is no break in the parameters, with unrestricted estimator under the break. The operational optimal combination weight is between zero and one. The analytical finite sample risk is derived, and it is shown that the risk of the proposed combined estimator is lower than that of the unrestricted estimator under any break size and break points. Further, the authors show that the combined estimator outperforms over the unrestricted estimator in terms of the mean squared forecast errors. Properties of the estimator are also demonstrated in simulations. Finally, empirical illustrations for parameter estimators and forecasts are presented through macroeconomic and financial data sets.

The objective of this work is to investigate the existence of structural breaks in multicointegration models estimated for Brazilian fiscal variables and to identify their effects on the sustainability or not of this country`s fiscal policy between December 1997 and June 2018.

The authors apply the econometric multicointegration method, in order to analyze long-term relationships between accumulated revenue and expenses of Brazilian central government and the stock of its debt, incorporating structural breaks, over the study period.

The unsustainability of the debt/GDP ratio is found here, as in a previous work, but now considering a structural break. As one of the contributions, the present work makes it possible to identify the date as of which Brazilian fiscal policy may have become unsustainable: May 2014.

The work points out the worsening of Brazilian fiscal situation as of 2014. The authors adapted original methodologies both in model specification and in the stationarity test used. The estimated parameters before and after structural break allow for identifying changes in fiscal variables that may have led to unsustainability, thus providing possible guidance for fiscal policy.

The purpose of this paper is to find out the factors contributing to major shifts in the growth of tax revenue through the estimation of structural breaks and analysis of major tax regimes. Recent contributions to optimal tax theory and empirical literature on the Laffer curve effect, based on elasticity of taxable income, challenge the settled understanding on the rate-revenue relationship. In this backdrop, the objective of the paper is to find out the relative significance of changes in tax rate, tax base and administrative reforms in affecting the growth of tax revenue in India. The paper considers tax data spanning a period of six and half decades for five major components of direct and indirect taxes (corporation, personal income, customs, excise and service) of the central government of India.

Unknown break point(s) – single and multiple – in the tax structure are identified by using the Quandt-Andrews and Bai-Perron econometric tests. These tests were conducted for two models of growth of taxes (tax revenue and tax-NDP ratio) estimated using semi-log functions. A simulation exercise was conducted to find out the robustness of the results by varying the trimming parameter and number of breaks. An analytical framework is used to understand the factors associated with these breaks.

There is more than one break identified for every tax component as per the results of Bai–Perron test. The simulation exercise suggests that estimated breakpoints are mostly robust. Economic growth, structural changes in the economy, simplification and rationalization of tax structure, tax competition, policies such as liberalization have contributed to the changing tax regimes. Results of this study suggest that high tax rates have not been, in particular, detrimental to achieving growth in revenue and factors other than changes in tax rates have been more prominent in bringing about the shifts.

This is, perhaps, the first paper exploring the multiple structural breaks in the fiscal variables in India. It offers an understanding of the changing regimes of central government taxes and the underlying factors for the same.

The purpose of this paper is to investigate the global influence of crude and refined oil futures prices on Dow Jones Islamic equity indices (DJIMI) during the recent global financial crisis under structural breaks in the conditional volatility of oil futures prices.

It aims at exploring the long-run and the short-run elasticity and causal relationships using an ARDL bound testing approach and a vector error correction model.

The main findings confirm the presence of long-run relationship for DJIM emerging markets index compared to other global and sub-regional developed indexes. Speed of adjustment to the long-run equilibrium is moderate and the effect of structural breaks, produced from nonlinear volatility model with long memory (LM), is overall not pronounced for that relationship. Short-run causality is bi-directional but long-run Granger causality does not run from refined oil to the DJIMI and crude oil.

The paper demonstrates the implicit extent of international financial integration of Islamic stock markets in light of the global influence of oil prices.

The findings offer some highlights to researchers, portfolio managers and policymakers.

The paper gives an answer to an identified need to test the position of Islamic equity markets as booming Islamic investment and socially responsible investment areas to the global influence of the new soaring path of oil markets. It uses as well bounds testing approach and tests weak and strong causalities under structural breaks. It considers as well LM behavior in oil prices along with the asymmetry property in oil prices.

The purpose of this paper is to investigate the long-run equilibrium relationship between developed, emerging and frontier markets of the Asia-Pacific region during January 2000 to June 2016.

Zivot and Andrews’ unit root test is used to examine the existence of unit root in index series in the presence of a structural break. Gregory and Hansen’s test of cointegration is employed to examine the stable long-run relationship between the indices under study.

The results suggest that the emerging markets of China and Thailand and the frontier markets of Sri Lanka and Pakistan are fairly segmented from most of the markets in the Asia-Pacific region. Hence, these markets provide good diversification opportunities to global investors. Bidirectional cointegration analysis indicates that emerging and frontier markets influence developed markets. Hence, it can be inferred that the de facto position that only bigger markets influence small markets no longer holds true in the current environment.

The findings of this study will provide valuable inputs to global investors for creating an optimal investment portfolio.

This study does a comprehensive examination of market integration in the Asia-Pacific region. It also contributes to the thin body of work done on frontier markets. Unlike past studies, this paper analyzes the bidirectional cointegration relationship to examine if the notion that only bigger markets influence smaller markets holds true or not. Finally, this study employs advanced techniques of unit root test and cointegration test that consider structural breaks in the models.