COINTEGRATION AND ASYMMETRIC ADJUSTMENT: SOME NEW EVIDENCE CONCERNING THE BEHAVIOUR OF THE US CURRENT ACCOUNT

imports and exports and asymmetries in the adjustment of the US current account over the study period 1960Q4-2007Q2. We find evidence in favour of cointegration through the application of the standard Johansen methodology. Employing the Trace test procedure recursively, two distinct regimes are identified according to whether or not imports and exports are cointegrated. We also consider the Breitung (2002) and Breitung and Taylor (2003) nonparametric cointegration test procedures that do not assume linear short-run dynamics. Further analysis of the asymmetric short-run dynamics reveals that adjustment towards long-run equilibrium is primarily driven by US exports responding to current account deficits.US Current Account, Sustainability, Cointegration, structural changes, nonparametric cointegration, recursive Trace test statistic, recursive betas, asymmetric error correction.

The Term Structure of Interest Rates, the Expectations Hypothesis and International Financial Integration: Evidence from Asian Economies

The validity of the expectations hypothesis of the term structure is examined for a sample of Asian countries. A panel stationarity testing procedure is employed that addresses both structural breaks and cross-sectional dependence. Asian term structures are found to be stationary and supportive of the expectations hypothesis. Further analysis suggests that international financial integration is associated with interdependencies between domestic and foreign term structures insofar as cross-term structures based on differentials between domestic (foreign) short- and foreign (domestic) long-rates are also stationary.Correlation, Heterogeneous dynamic panels, term structure, mean reversion, panel stationarity test

Investigating Regional House Price Convergence in the United States: Evidence from a Pair-Wise Approach

In this paper we examine long-run house price convergence across US states using a novel econometric approach advocated by Pesaran (2007) and Pesaran et al. (2009). Our empirical modelling strategy employs a probabilistic test statistic for convergence based on the percentage of unit root rejections among all state house price differentials. Using a sieve bootstrap procedure, we construct confidence intervals and find evidence in favour of convergence. We also conclude that speed of adjustment towards long-run equilibrium is inversely related to distance.Panel data, cross-section dependence, pair-wise approach, house prices, convergence

The Sustainability of India's current account (1950-2003): Evidence from parametric and non-parametric unit root and cointegration tests

This study conducts an investigation into the sustainability of the Indian current account over the study period 1950-2003. It is argued that a necessary condition for current account sustainability is that exports and imports are cointegrated. After testing for unit roots that allow for a structural break, we employ parametric tests for cointegration: based on Johansen (1995) and Saikonnen and LŸtkepohl (2000) as well as the nonparametric procedure proposed by Breitung (2002) and Breitung and Taylor (2003) that does not assume linearity. By employing these procedures recursively, two distinct regimes are identified characterised by whether or not imports and exports are cointegrated. The regime of non-cointegration runs until the late 1990s and the second regime of cointegration is present after that. This latter regime coincides with the liberalisation of the Indian economy.India, current account, sustainability, cointegration, nonparametric cointegration, rolling and recursive p-valuesdata

On the Stationarity of Current Account Deficits in the European Union

In this paper, we test for the stationarity of EU current account deficits. Our testing strategy addresses two key concerns with regard to unit root panel data testing, namely (i) the identification of which panel members are stationary, and (ii) the presence of cross-sectional dependence. For this purpose, we employ an AR-based bootstrap approach to the Hadri (2000) test. While there is only mixed evidence that current account stationarity applies when examining individual countries, this does not appear to be case when considering panels comprising both EU and non-EU members.Heterogeneous dynamic panels, current account stationarity, mean reversion, panel stationarity test

ARE EU BUDGET DEFICITS STATIONARY?

In this paper, we test for the stationarity of European Union budget deficits over the period 1971 to 2006, using a panel of thirteen member countries. Our testing strategy addresses two key concerns with regard to unit root panel data testing, namely (i) the presence of cross-sectional dependence among the countries in the panel and (ii) the identification of potential structural breaks that might have occurred at different points in time. To address these concerns, we employ an AR-based bootstrap approach that allows us to test the null hypothesis of joint stationarity with endogenously determined structural breaks. In contrast to the existing literature, we find that the EU countries considered are characterised by fiscal stationarity over the full sample period irrespective of us allowing for structural breaks. This conclusion also holds when analysing sub-periods based on before and after the Maastricht treaty.Heterogeneous dynamic panels, fiscal sustainability, mean reversion, panel stationarity test.

On The Sustainability of the EU’s Current Account Deficits.

In this paper, we test for the stationarity of EU current account deficits. Our testing strategy addresses two key concerns with regard to unit root panel data testing, namely (i) the identification of which members-states are stationary, and (ii) the presence of cross-sectional dependence. For this purpose, we employ a moving block bootstrap approach to the Hadri (2000) test. While there is evidence that current account sustainability applies to panels comprising EU members, this is not the case when non-EU economies are considered.Heterogeneous dynamic panels, current account sustainability, mean reversion, panel stationarity test.

Real Interest Parity: A Note on Asian Countries Using Panel Stationarity Tests

Existing panel data studies of real interest parity are either unable to identify which panel members are characterised by stationary real interest differentials, or are subject to size distortion resulting from the presence of structural breaks and cross-sectional dependencies. Using a panel stationarity testing procedure recently advocated by Hadri and Rao (2008) that allows for structural breaks and cross-sectional dependency, we are unable to reject the stationarity of Asian real interest rate differentials.Heterogeneous dynamic panels, real interest parity, mean reversion, panel, stationarity test

Are EU budget deficits sustainable?

In this paper, we test for the stationarity and sustainability of European Union budget deficits over the period 1971 to 2006, using a panel of thirteen member countries. Our testing strategy addresses two key concerns with regard to unit root panel data testing, namely (i) the identication of which members-states are stationary, and (ii) the presence of cross-sectional dependence. We employ a moving block bootstrap approach to the Hadri (2000) procedure that tests the null of joint stationarity. In contrast to the existing literature, we find that the EU countries considered are characterised by fiscal sustainability over the full sample period. This conclusion also holds when analysing sub-periods based on before and after the Maastricht treaty.Heterogeneous dynamic panels, fiscal sustainability, mean reversion, panel stationarity test.