Testing for inflation convergence between the Euro Zone and its CEE partners

We investigate inflation convergence between the Euro Zone and its CEE partners using panel data methods that incorporate structural shifts. We find strong rejections of the unit root hypothesis, and therefore evidence of PPP, in the East-European countries for the 1995:1 to 2000:4 period.http://deepblue.lib.umich.edu/bitstream/2027.42/40154/3/wp768.pd

Energy Consumption and Economic Growth Revisited in African Countries

The aim of this paper is to provide new empirical evidence on the relationship between energy consumption and economic growth for 21 African countries over the period from 1970 to 2006, using recently developed panel cointegration and causality tests. The countries are divided into two groups: net energy importers and net energy exporters. It is found that there exists a long-run equilibrium relationship between energy consumption, real GDP, prices, labor and capital for each group of countries as well as for the whole set of countries. This result is robust to possible cross-country dependence and still holds when allowing for multiple endogenous structural breaks, which can differ among countries. Furthermore, we find that decreasing energy consumption decreases growth and vice versa, and that increasing energy consumption increases growth, and vice versa, and that this applies for both energy exporters and importers. Finally, there is a marked difference in the cointegration relationship when country groups are considered.Africa, energy consumption, economic growth, panel cointegration, panel causality

The Feldstein –Horioka Puzzle and structural breaks: evidence from EU members.

The purpose of this paper is to investigate the level of capital mobility in European Union members using the Feldstein-Horioka puzzle proposed by Feldstein and Horioka (1980) in order to investigate relations between saving and investment flows. In this paper, data for 27 European countries were used over the period of 1995-2009 on the quarterly basis. Data were extracted from the official statistical site of the European Union, Eurostat. Firstly, unit root tests were applied to the series in order to estimate the stationarity of the model variables. Two different tests were used, which are the Ng and Perron (2001) unit root test procedure and approach proposed by Zivot and Andrews (1992) for unit root test allowing for a structural shift. Then the Bai and Perron (1998) structural break test was applied to determine the presence of structural breaks in series. In most countries except Belgium and Finland UDmax and WD max tests rejected the hypothesis of no breaks. Moreover, structural break locations for every series were selected by sequentially procedure, BIC and LWZ. Finally, the cointegration relationships between investment and saving flows of European Union members were tested. Three different cointegration techniques were applied to the data. Firstly, the Johansen (1988) cointegration approach was used for the case of no cointegration shifts, then the Gregory and Hansen (1996) cointegration test was applied, which allows for one structural shift. Finally, again the Johansen’ cointegration approach was used; however, this time with the inclusion of dummy variables related to earlier selected structural break locations. The empirical results provided stronger evidence of cointegration between investment and saving variables in the case of structural break accommodation compared to the case where the presence of structural breaks was ignored. In most cases of estimations saving-investment correlation has a tendency to increase with regime changes. However, the estimated saving retention coefficient in the presence of structural breaks using the Bai and Perron (1998) approach appeared relatively low in many cases, illustrating by this the openness of estimated countries. In general, world and European countries with time have a tendency to a higher level of their capital market openness. According to Feldstein and Horioka (1980), a higher saving-investment correlation is related to lower capital mobility. Therefore, the contradicting results between saving retention coefficient estimates and cointegration tests illustrate that cointegration indicates a rather current account solvency condition than capital mobility. Estimations of a saving retention coefficient in the presence of structural changes do not support the existence of the Feldstein-Horioka Puzzle in the considered EU countries.Feldstein-Horioka puzzle, saving-investment association, capital mobility, cointegration, structural breaks, EU.

A Longer-run Perspective on Fiscal Sustainability

This paper investigates the sustainability of fiscal policy in a set of 19 countries by taking a longer-run secular perspective over the period 1880-2009. Via a systematic analysis of the stationarity properties of the first-differenced level of government debt, and disentangling the components of the debt series using Structural Time Series Models, we are able to conclude that the solvency condition would be satisfied in mostly all cases since non-stationarity can be rejected, and, therefore, longer-run fiscal sustainability cannot be rejected (Japan and Spain can be exceptions). The same would be true for the panel sample analysis.fiscal sustainability, government debt, unit roots, breaks, structural time series models Classification-C23, E62, H62

Testing for rational bubbles in the presence of structural breaks: Evidence from nonstationary panels

This is the post-print version of the final paper published in Journal of Banking & Finance. The published article is available from the link below. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. Copyright @ 2011 Elsevier B.V.This paper presents new results on the rational bubbles hypothesis for a panel of 18 OECD countries using the model developed by Campbell (2000). We provide an analysis of international data that exploits increased power deriving from the panel unit root and cointegration methodology, together with the flexibility of allowing explicitly for multiple endogenous structural breaks in the individual series. Differently from the time series methodology, the panel data approach allows for a global analysis of the financial crashes that are related to rational bubbles. We find strong evidence in favor of bubbles phenomena

What do we really know about fiscal sustainability in the EU? A panel data diagnostic

We assess the sustainability of public finances in the EU15 over the period 1970-2006 using stationarity and cointegration analysis. Specifically, we use panel unit root tests of the first and second generation allowing in some cases for structural breaks. We also apply modern panel cointegration techniques developed by Pedroni (1999, 2004), generalized by Banerjee and Carrion-i-Silvestre (2006) and Westerlund and Edgerton (2007), to a structural long-run equation between general government expenditures and revenues. While estimations point to fiscal sustainability being an issue in some countries, fiscal policy was sustainable both for the EU15 panel set, and within sub-periods (1970-1991 and 1992-2006)http://deepblue.lib.umich.edu/bitstream/2027.42/64361/1/wp893.pd

Granger non-causality tests between (non)renewable energy consumption and output in Italy since 1861: the (ir)relevance of structural breaks

The present paper considers an Italian dataset with an annual frequency from 1861 to 2000. It implements Granger non-causality tests between energy consumption and output contrasting methods allowing for structural change with those imposing parameter stability throughout the sample. Though some econometric details can differ, results have clear policy implications. Energy conservation policies are likely to hasten an underlying tendency of the economy towards a more efficient use of fossil fuels. The abandonment of traditional energy carriers was a positive change.renewable energy, non-renewable energy, real GDP, Granger-causality, cointegration

Is volume index of gdp per capita stationary in oecd countries? panel stationary tests with structural breaks

The purpose of this paper is to investigate whether volume index of GDP per capita is stationary for 24 OECD countries during the period 1970 to 2006. We utilize a panel stationary tests that allow for multiple structural breaks, developed by Carrion-i-Silvestre et al. (2005). The empirical findings are threefold: (1) when we employ univariate unit tests, such as ADF and KPSS without structural breaks, we hardly find evidence of I(0) stationarity, except for Switzerland (2) when we employ KPSS stationarity test with multiple structural breaks, we find evidence of I(0) stationarity for 22 out of 24 countries and (3) when we employ KPSS panel I(0) stationarity test with multiple structural breaks and the assumption of cross-section dependence, we find significant evidence of panel I(0) stationarity of per capita GDP for these OECD countries. The findings of this paper have implications for policymaking and econometric modeling for these 24 OECD countries.Volume Index of GDP per Capita Panel Stationary Tests with Structural Breaks OECD Countries

The Feldstein Horioka Puzzle by groups of OECD members: the panel approach.

This paper investigates investment savings relationships in 26 OECD countries and how these relationships change when countries in the considered panel vary. Therefore panel estimations using annual data for the period 1970-2008 are made for different groups of developed countries, such as the OECD, EU15, NAFTA and G7. Additionally, this paper examines changes in investment saving relationships in groups of developed countries taking into account the presence of structural shifts in countries where they exist. Recent panel techniques are employed in this study to examine investment savings relationships and to estimate saving retention coefficients. The empirical findings reveal that the Feldstein-Horioka puzzle exists only in the panel of G7 countries where the saving-retention coefficient is estimated at the level 0.754 and 0.864 for the full sample of G7 countries and for stable countries, respectively. The estimated saving-retention coefficient for the G7 group of unstable appear at the 0.482 level, indicating a higher level of capital mobility in unstable countries compared to stable ones. This conclusion is supported by estimations for OECD and EU15 countries.Feldstein-Horioka puzzle, capital mobility, structural breaks, panel estimations, OECD.

Testing for inflation convergence between the Euro Zone and its CEE partners

We investigate inflation convergence between the Euro Zone and its CEE partners using panel data methods that incorporate structural shifts. We find strong rejections of the unit root hypothesis, and therefore evidence of PPP, in the East-European countries for the 1995:1 to 2000:4 period.Purchasing power parity, inflation convergence, developing country, panel unit-root tests allowing structural breaks