A confirmatory analysis of the unit root hypothesis for OECD consumption-income ratios
Abstract:This article investigates the existence of a unit root in the consumption-income ratio for a sample of 23 OECD countries over the period 1960 to 2005. For that purpose, we first use recently developed unit root tests with good size and power. Second, we employ the more powerful panel unit root tests of Pesaran (2003) and Smith et al. (2004) that take the null of nonstationarity and a bootstrap version of the test of Hadri (2000) that takes stationarity as the null hypothesis. Overall, our confirmatory analysis renders clear-cut evidence that OECD consumption-income ratios contain a unit root.
Document Type: Research Article
Affiliations: Department of Economics, Pablo de Olavide University, 41013 Seville, Spain
Publication date: September 1, 2008