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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: 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

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Article
Publication date: 2 November 2015

Chandan Sharma and Rajat Setia

– This paper aims to examine the relationship between Indian rupee-US dollar exchange rate and the macroeconomic fundamentals for the post-economic reform period.

Abstract

Purpose

This paper aims to examine the relationship between Indian rupee-US dollar exchange rate and the macroeconomic fundamentals for the post-economic reform period.

Design/methodology/approach

The authors have used an empirical model which includes a range of important macroeconomic variables based on the basic monetary theories of exchange rate determination. At the first stage of the analysis, they have tested structural break in the data. Subsequently, they have employed the fully modified ordinary least square, Wald’s coefficient restriction and impulse response functions (IRF) to estimate the monetary model in the long- and short-run horizons.

Findings

Results of analyses indicate that the macroeconomic fundamentals determine exchange rate in a significant way, but their effect varies sizably across the periods. The IRF illustrate the importance of interest rate in controlling exchange rate volatility.

Practical implications

The analysis of the behavior of inter-relationship among macroeconomic variables will help policymakers in a deep-rooted understanding of this complex and time-varying relationship.

Originality/value

Most of the existing studies have tested the impact of a single or a few macroeconomic fundamentals on exchange rate. But in the present study, we have tested the impact of a range of important variables, i.e. money supply, real income or output, price level and trade balance. Further, considering the importance of structural breaks in data, they authors have employed standard tests of structural break and incorporated the issue in the cointegration analysis.

Details

Journal of Financial Economic Policy, vol. 7 no. 4
Type: Research Article
ISSN: 1757-6385

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Book part
Publication date: 15 April 2020

Cindy S. H. Wang and Shui Ki Wan

This chapter extends the univariate forecasting method proposed by Wang, Luc, and Hsiao (2013) to forecast the multivariate long memory model subject to structural breaks

Abstract

This chapter extends the univariate forecasting method proposed by Wang, Luc, and Hsiao (2013) to forecast the multivariate long memory model subject to structural breaks. The approach does not need to estimate the parameters of this multivariate system nor need to detect the structural breaks. The only procedure is to employ a VAR(k) model to approximate the multivariate long memory model subject to structural breaks. Therefore, this approach reduces the computational burden substantially and also avoids estimation of the parameters of the multivariate long memory model, which can lead to poor forecasting performance. Moreover, when there are multiple breaks, when the breaks occur close to the end of the sample or when the breaks occur at different locations for the time series in the system, our VAR approximation approach solves the issue of spurious breaks in finite samples, even though the exact orders of the multivariate long memory process are unknown. Insights from our theoretical analysis are confirmed by a set of Monte Carlo experiments, through which we demonstrate that our approach provides a substantial improvement over existing multivariate prediction methods. Finally, an empirical application to the multivariate realized volatility illustrates the usefulness of our forecasting procedure.

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Article
Publication date: 14 November 2016

Giorgio Canarella and Stephen M. Miller

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…

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Research limitations/implications

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

Practical implications

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

Social implications

Global financial crisis affected the persistence of inflation rates.

Originality/value

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

Details

Journal of Economic Studies, vol. 43 no. 6
Type: Research Article
ISSN: 0144-3585

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Book part
Publication date: 19 December 2012

Michael W. McCracken

In this chapter we provide analytical and Monte Carlo evidence that Chow and Predictive tests can be consistent against alternatives that allow structural change to occur…

Abstract

In this chapter we provide analytical and Monte Carlo evidence that Chow and Predictive tests can be consistent against alternatives that allow structural change to occur at either end of the sample. Attention is restricted to linear regression models that may have a break in the intercept. The results are based on a novel reparameterization of the actual and potential break point locations. Standard methods parameterize both of these locations as fixed fractions of the sample size. We parameterize these locations as more general integer-valued functions. Power at the ends of the sample is evaluated by letting both locations, as a percentage of the sample size, converge to 0 or 1. We find that for a potential break point function, the tests are consistent against alternatives that converge to 0 or 1 at sufficiently slow rates and are inconsistent against alternatives that converge sufficiently quickly. Monte Carlo evidence supports the theory though large samples are sometimes needed for reasonable power.

Details

30th Anniversary Edition
Type: Book
ISBN: 978-1-78190-309-4

Keywords

Content available
Article
Publication date: 30 July 2020

Arcade Ndoricimpa

This study reexamines the sustainability of fiscal policy in Sweden.

Abstract

Purpose

This study reexamines the sustainability of fiscal policy in Sweden.

Design/methodology/approach

To test the sustainability of fiscal policy, two approaches are used; the methodology of Kejriwal and Perron (2010), testing for multiple structural changes in a cointegrated regression model and time-varying cointegration test of Bierens and Martins (2010), and Martins (2015).

Findings

Using the first approach of testing for multiple structural changes in a cointegrated regression model, the results indicate that government spending and revenue are cointegrated with two breaks. An estimation of a two-break long-run model shows that the slope coefficient increases from 0.678 to 0.892 from the first to the second regime, implying that fiscal deficits were weakly sustainable in the first two regimes, from 1800 to 1943, and from 1944 to 1974. Further, results from time-varying cointegration test indicate that cointegration between spending and revenue in Sweden is time-varying. Fiscal deficits were found to be unsustainable for the periods 1801–1811, 1831–1838, 1853–1860 , 1872–1882, 1897–1902, 1929–1940 and 1976–1982 and weakly sustainable over the rest of the study period.

Research limitations/implications

A number of implications arise from this study: (1) Accounting for breaks in cointegration analysis and in the estimation of the level relationship between spending and revenue is very important because ignoring breaks may lead to an overestimated slope coefficient and hence a bias on the magnitude of fiscal deficit sustainability. (2) In testing for cointegration between spending and revenue, assuming a constant cointegrating slope when it is actually time-varying can also be misleading because deficits can be sustainable for a period of time and unsustainable over another period.

Originality/value

The contribution of this study is three-fold; first, the study uses a long series of annual data spanning over a period of two centuries, from 1800 to 2011. Second, because of the importance of structural change in economics, to examine the existence of a level relationship between spending and revenue, the study uses the methodology of Kejriwal and Perron (2010) to test for multiple structural changes in a cointegrated regression model, as well as time-varying cointegration of Bierens and Martins (2010) and Martins (2015).

Details

Journal of Economics and Development, vol. 23 no. 1
Type: Research Article
ISSN: 1859-0020

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Article
Publication date: 7 December 2018

Yi Luo and Yirong Huang

The purpose of this paper is to explore whether stock index volatility series exhibit real long memory.

Abstract

Purpose

The purpose of this paper is to explore whether stock index volatility series exhibit real long memory.

Design/methodology/approach

The authors employ sequential procedure to test structural break in volatility series, and use DFA and 2ELW to estimate long memory parameter for the whole samples and subsamples, and further apply adaptive FIGARCH (AFIGARCH) to describe long memory and structural break.

Findings

The empirical results show that stock index volatility series are characterized by long memory and structural break, and therefore it is appropriate to use AFIGARCH to model stock index volatility process.

Originality/value

This study empirically investigates the properties of long memory and structural break in stock index volatility series. The conclusion has a certain reference value for understanding the properties of long memory and structural break in volatility series for academic researchers, market participants and policy makers, and for modeling and forecasting future volatility, testing market efficiency, pricing financial assets, constructing quantitative investment strategy and measuring market risk.

Details

China Finance Review International, vol. 9 no. 3
Type: Research Article
ISSN: 2044-1398

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Article
Publication date: 2 August 2013

Shegorika Rajwani and Jaydeep Mukherjee

The purpose of this paper is to investigate the linkages between Indian stock markets with other Asian stock markets namely, Hong Kong, Indonesia, Japan, South Korea…

Abstract

Purpose

The purpose of this paper is to investigate the linkages between Indian stock markets with other Asian stock markets namely, Hong Kong, Indonesia, Japan, South Korea, Malaysia, Taiwan and China. Such a study is particularly important because if the level of integration among the markets is high, then investing in different markets will not generate long term gains from portfolio diversification or reduction in risk.

Design/methodology/approach

The paper applies unit root test in the presence of endogenous structural breaks that uses a Lagrange Multiplier (LM) test statistics and the Gregory and Hansen cointegration technique that allows for endogenous determined structural break in the relationship have been applied.

Findings

The results suggest that the Indian stock markets are not integrated with any of the Asian markets either individually or collectively, and conclude that Indian markets are not sensitive to the dynamics in these markets in the long run.

Originality/value

Since the level of integration has been studied keeping in mind the different economical phases like recession and boom, the study has incorporated the possibility of existence of structural breaks in the individual stock return series as well as in their relationship. The lack of evidence on interlinkage of Indian stock markets with other Asian markets suggests that the trend of Indian markets is not in sync with other markets, possibly due to difference in macroeconomic structure. Since the level of integration has been studied keeping in mind the different economical phases like recession and boom, the study has incorporated the possibility of existence of structural breaks in the individual stock return series as well as in their relationship. The lack of evidence on interlinkage of Indian stock markets with other Asian markets suggest that the trend of Indian markets is not in sync with other markets, possibly due to difference in macroeconomic structure.

Details

Management Research Review, vol. 36 no. 9
Type: Research Article
ISSN: 2040-8269

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Article
Publication date: 6 November 2018

Ismail Olaleke Fasanya, Temitope Festus Odudu and Oluwasegun Adekoya

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.

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Originality/value

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.

Details

International Journal of Energy Sector Management, vol. 13 no. 2
Type: Research Article
ISSN: 1750-6220

Keywords

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