UNIT ROOTS

levinlin estimates the panel unit root test developed by Levin, Lin and Chu (2002). The test assumes that each individual unit in the panel shares the same AR(1) coefficient, but allows for individual effects, time effects and possibly a time trend. Lags of the dependent variable may be introduced to allow for serial correlation in the errors. The test may

ipshin estimates the t-test for unit roots in heterogeneous panels developed by Im, Pesaran and Shin (IPS, 1997). It allows for individual effects, time trends, and common time effects. Based on the mean of the individual Dickey-Fuller t-statistics of each unit in the panel, the IPS test assumes that all series are non-stationary under the null hypothesis. Lags of the

The recent fears of a sovereign debt crisis have spurred interest in the sustainability of public debt. There are two different approaches to the assessment of sustainability: the use of sustainability gap indicators (Blanchard et al., 1990) and the time series approach (Trehan and Walsh, 1988). In this paper we analyze the sustainability of public debt in Italy following the

Equity investment is assumed to be a good hedge against inflation since long time. This paper examines short run causal relationship between inflation and stock return in emerging BRICS markets. The study covers a comprehensive period of 13 years from the year 2000 to 2013 using quarterly data. The regression results reveal a significant positive relationship between changes in inflation and stock returns only in case of Brazil. But, Granger causality results reveal unidirectional causality from stock return to changes in inflation in Russia, India and South Africa and bidirectional causality in China. Hence, there seem to be a cause and effect relationship between stock returns and inflation in emerging markets. The results are of pertinent importance in today‟s context where emerging markets are facing the problems of rising inflation and volatile stock returns. The policy regulators need to understand these dynamics between inflation and stock returns to ensure better regulation of the markets. For investors  particularly large and institutional investors the study findings support trading based on inflation forecasts. efficiency of Indian stock market.

ABSTRACT This paper tests the classical hypothesis of inter-industry profit rate's proclivity to gravitate towards the economy's average profit rate. In so doing, individual as well as panel unit root tests have been applied on a dataset consisting of 52 Japanese manufacturing industries spanning the period 1974-2008. The evidence generated is rather mixed in a sense that the inter-industry profit rates tendency to gravitate towards the economy's average rate of profit depends on the idiosyncratic characteristics of each industry. However, the rate of profit of regulating capitals, as this is reflected in the incremental rate of profit, displays gravitational behaviour around the economy-wide incremental rate of profit, the movement of which is found to be linked to the rate of return in the stock market. These results lend support to those who contend that the classical theory of competition is an area where further research is warranted.

Analytical asymptotic local power functions are employed to study the effects of general form short term serial correlation on �fixed-T panel data unit root tests. Two models are considered, one that has only individual intercepts and one that has both individual intercepts and individual trends. It is shown that tests based on IV estimators are more powerful in all cases examined. Even more, for the model with individual trends an IV based test is shown to have non-trivial local power at the natural root-N rate.

The causal relationship between economic growth and defence spending has attracted considerable attention and has been the subject of many empirical studies. This paper investigates the existence of a causal link between military expenditure and economic growth in the case of Greece for the period 1955–93. By European Union standards, Greece allocates substantial human and material resources to defence. At

In this paper we suggest panel data unit root tests which allow for a potential structural break in the individual e¤ects and/or the trends of each series of the panel, assuming that the time-dimension of the panel, T , is ...xed. The proposed test statistics consider for the case that the break point is known and for the case that it is unknown. Monte Carlo evidence suggests that they have size which is very close to the nominal ...ve percent level and power which is analogues to that of Harris and Tzavalis (1999) test statistics, which do not allow for a structural break. JEL classi...cation : C22, C23

This paper presents a new test for fractionally integrated (FI) processes. In particular, we propose a testing procedure in the time domain that extends the well-known Dickey-Fuller approach, originally designed for the I(1) versus I(0) case, to the more general setup of FId0 versus FId1, with d1 < d0. When d0 = 1, the proposed test statistics are based on the OLS estimator, or its t-ratio, of the coefficient on d1yt−1 in a regression of yt on d1yt−1 and, possibly, some lags of yt. When d1 is not taken to be known a priori, a pre-estimation of d1 is needed to implement the test. We show that the choice of any T 1/2-consistent estimator of d1 ∈ 0 1 suffices to make the test feasible, while achieving asymptotic normality. Monte-Carlo simulations support the analytical results derived in the paper and show that proposed tests fare very well, both in terms of power and size, when compared with others available in the literature. The paper ends with two empirical applications.

Este trabajo, partiendo de las recientes teorías de crecimiento, pretende poner de manifiesto la importancia y diversidad del impacto del capital tecnológico en la producción de los distintos sectores industriales. Para conseguir este propósito, se ha formado un panel con datos de nueve países de la Unión Europea durante el período 1975-1992, a partir del cual se ha estimado para doce agregaciones sectoriales una función de producción ampliada. Entre las principales aportaciones del estudio, cabe señalar la adopción de un enfoque sectorial en la estimación de un modelo con datos de España y de otros ocho países de la Unión Europea y la utilización de contrastes de raíces unitarias y de cointegración para validar las estimaciones realizadas mediante las técnicas de datos de panel, tratando de evitar, de esta forma, la posibilidad de que las regresiones sean espúreas. Los resultados confirman que, para la mayoría de los sectores manufactureros, es preciso ampliar la función de producc...

It is a stylised fact that financial "repression" retards economic growth. Hence, financial liberalisation is advocated to remove the stranglehold on the economy. Financial liberalisation policy argues that deregulation of interest rate would result into a higher real interest rate which would lead to increased savings, increased investment and achieve efficiency in financial resource allocation. Past studies have reported inconclusive results regarding the interest rate effects on savings and investment. This paper examines the financial liberalisation hypothesis by employing autoregressive distributed lag (ARDL) modelling approach on Nepalese data. Results show that the real interest rate affects both savings and investment positively.

Covariance based orthogonality tests for regressors with unknown persistence (Preliminary and Incomplete) Alex Maynard and Katsumi Shimotsu* Department of Economics, University of Toronto and Department of Economics, Queen's University Febuary 21, 2002 Abstract ...

SummaryWe analyse German public finances against a theoretical background using a unique database, retrieved from multiple sources covering the period between 1850 and 2010.Multiple currency crises and force majeure offer anecdotal evidence contradicting the historical perception of Germany being the poster child of European public finance. Given these corresponding breaks in time series, the empirical analysis is conducted for the sub-periods 1872-1913 and 1950- 2010. In addition to anecdotal historical analysis, we conduct formal tests on fiscal sustainability, including tests on stationarity and cointegration and the estimation of Vector Autoregression (VAR) and Vector Error Correction Models (VECM). While we cannot reject the hypothesis that fiscal policy was sustainable in the period before the First World War, the tests allow for a rejection of the hypothesis of fiscal sustainability for the period from 1950 to 2010. This evidence leads to the conclusion that Germany’s public ...

While tests for unit roots and cointegration have important econometric and economic implications, they do not always offer conclusive results. For example, Rudebusch (1992; 1993) demonstrates that standard unit root tests have low power against estimated trend stationary alternatives. In addition, Perron (1989) shows that standard unit root tests cannot always distinguish unit root from stationary processes that contain segmented