LM Unit Root Tests Research Articles

Unemployment hysteresis in Central and Eastern European countries during EU-membership

AbstractThis study aims to analyse the time series properties of the unemployment rates in 10 Central and Eastern European countries after joining the European Union. Three types of unit root tests were conducted: (1) linear unit root tests, namely ADF, PP, LM, and RALS-LM tests; (2) LM and RALS-LM unit root tests with two structural breaks; and (3) LM and RALS-LM unit root tests with Fourier function. The results reveal that the hysteresis hypothesis is valid for Bulgaria, Czechia, Hungary, Latvia, Lithuania, Romania and Slovenia, whereas the structuralist hypothesis is valid for Estonia and Poland. However, the natural rate hypothesis holds only for Slovakia.

The growth effect of crude oil revenue and capital investment: The Nigerian perspective

AbstractThis study assesses how oil revenue and capital investment affected Nigeria's economic growth from 1981 to 2020. The study uses the autoregressive distributed lag (ARDL) and Toda–Yamamoto causality models for analysis. More so, we considered the possibility of structural break and thus utilised the Lee–Strazicich LM unit root test. The structural break unit roots confirm the stationarity of the variables with identified breakpoints. Therefore, the ARDL result reveals that crude oil revenue enhances short‐ and long‐term economic growth; the short‐term effect is insignificant, but it is very substantial in the long term. Again, capital investment positively but insignificantly drives short‐period economic growth. However, capital investment substantially promotes long‐term economic growth. The causality evidence indicates that crude oil revenue causes capital investment and economic growth. Also, capital investment and economic growth exhibit bidirectional causality. The evidence suggests improving oil revenue by increasing crude oil exports and ensuring pipeline security to reduce oil theft. The government should channel crude oil earnings toward capital investment to promote real economic productivity.

CONVERGENCE OF WHOLESALE ELECTRICITY PRICES ACROSS EUROPEAN MARKETS: ARE WE THERE YET?

European electricity market integration has been a research focus, especially after the third electricity directive emphasizing the internal market. Electricity markets are characterized by immediate consumption with storage and transmission constraints, leading to unique price dynamics. Price convergence in European markets can lead to competitive pricing, advocating market integration. This research examines whether European wholesale spot electricity prices converge. Prior literature uses sigma and beta-convergence to test price convergence. We have examined the stochastic convergence of prices across 19 European nations from 2013 to 2021 utilizing monthly data. For this analysis, we employed LM tests incorporating trend breaks grounded on the RALS regression framework. RALS-LM tests are more powerful than linear tests when structural breaks and nonnormal errors are present. LM and RALS-LM unit root tests with two trend breaks resulted in rejection of the unit root hypothesis for all countries, suggesting relative wholesale prices are stationary. Thus, shocks to relative prices are transient, supporting price convergence at the wholesale level. This result should be considered carefully as it contradicts the results from recent literature that examines retail electricity prices using beta- sigma- and club convergence. The policy implications of this finding can provide a foundation for establishing policies that promote a harmonized and integrated European electricity market.

Renewable Energy Consumption Convergence in G-7 Countries

This study examines the convergence of renewable energy consumption in G-7 countries. We employ LM unit root and RALS version of LM unit root tests with endogenously determined with structural one or two breaks. Despite the increase in renewable energy consumption in G-7 countries, it is important to identify whether renewable energy consumption converges across these countries to formulate appropriate policies to support sustainable energy consumption and reduce CO2 emissions. Our analysis indicated that Germany, Italy, and Canada exhibit evidence of convergence. However, after employing both the LM and RALS versions of the LM unit root tests, which consider level shifts with one or two breaks or trend shifts with one or two breaks, we found that there is no evidence of convergence for France, Japan, and the United Kingdom. Overall, our results highlight the importance of formulating country-specific policies to support renewable energy consumption and reduce CO2 emissions. Policymakers need to identify the drivers of renewable energy consumption and adopt appropriate measures to ensure that the countries can meet their climate goals while also ensuring energy security.

The Convergence Dynamics of Per Capita International Tourist Arrivals

ABSTRACT The study highlights the importance of comovements in tests of stochastic convergence in per capita international tourist arrivals for a large multi-country panel. LM unit root tests with allowance for comovements and structural breaks reveals a significant reduction in the number of rejections of the unit root null hypothesis when compared to LM unit root tests without comovements. Additional analysis allowing for Fourier gradual breaks confirms our findings of limited evidence of stochastic convergence. Upon further examination of convergence clubs, we identify four convergence clusters for per capita international tourist arrivals distinguished by whether a country is considered a small island economy.

Degree of persistence of energy mix diversification of the US states: fresh evidence using LM unit root tests with sharp or smooth breaks and cross-sectional dependence.

Diversification of energy mix is related to the heterogeneity of contributions of energy sources in the energy consumption basket of nations. Its persistent degree reveals the efficiency of energy-related policies or shocks to diversify the contributions of energy sources in the energy mix. For the first time, the current study measures the diversification level of energy mix of the USA and its 51 states and examines its stochastic behavior to analyze its degree of persistence. To this end, we calculated the diversification of energy mix using Herfindahl-Hirschman index over the period 1960-2020. Then, we applied two novel versions of LM unit root tests that can incorporate sharp or smooth breaks and common factors (to control for cross-sectional dependence) to quantify the stochastic behavior of time series of Herfindahl-Hirschman index. Our results indicate (i) the energy mix of most of the US states diversified over the period. (ii) Most parts of diversification of energy mix occurred from mid of the 1970s to first half of the 1990s. (iii) Sharp breaks of deterministic part (intercept and slope of the linear trend) of Herfindahl-Hirschman indexes occurred coinciding with oil prices shocks in two decades 1970 and 1980. (iv) The Herfindahl-Hirschman index of most of states display stationary behavior, which indicate the pro-diversification policies, e.g., which are implemented to develop renewable energy sources, have transitory effects and policymakers should implement long-horizon policies to achieve their targeted level of diversification.

Current Account Sustainability of South Africa with Regime Shifts

Purpose This study investigates the sustainability of current account with possible regime shifts in South Africa. Design/methodology/approach The study makes use of an annual data spanning from 1980 to 2021, the data is collected from International monetary fund. To ensure the order of integration of variables, the study used Fourier LM unit root test and Minimum LM unit root test. The study uses maki cointegration test with multiple structural breaks to examine the long run relationship between the variables in the presence of structural breaks. Findings Maki cointegration test confirmed a long run relationship between exports and imports of goods and services. The results indicate that the current account sustainability of South Africa is weakly. Research limitations/implications This study did not consider the effect of nonlinearities in the modelling processes. Another drawback of this study is that it did not use frequency analysis such as wavelet /Fourier transform since the current account can be affected by volatilities in the domestic and global markets. Therefore, for future studies it will be better if they overcome the limitations of this study. Originality/value This study focuses specifically on the issue of current account sustainability, taking into consideration the possible consequences of structural changes brought about by South Africa's prior economic crises. In addition, this study recommends the devaluation of currency for South Africa to ensure that the exports always exceed imports or the improvement in the current account deficit.

Euro Area Product Market Integration

Abstract The goal of this paper is to determine if there is product market integration in the euro area (EA). The paper employs LM and RALS-LM unit root tests with two breaks on the relative price series, constructed using the seasonally adjusted monthly Harmonized Index of Consumer Prices (HICP), from 1996:01 to 2017:05. The analysis shows EA-accession related breaks in price series for most of the EA11 countries, but, apart from Malta, no such breaks for the later-EA-joiners. However, there are breaks in both EA and non-EA countries at the time of EA formation. There is also evidence of greater product market integration and less adverse effects after negative shocks in the EA12. However, unit root analysis points to a conclusion that EA membership is not a sufficient condition for product market integration and integration is not necessarily related to being an EA member.

Ar-Ge Yatırımlarının Dış Ticarete Etkisi: ARDL Yaklaşımıyla Türkiye Örneği

Bu çalışmanın amacı Türkiye’deki Ar-Ge faaliyetlerinin, Türkiye’nin dış ticaret performansına etkisini tespit etmektir. Bu bağlamda Türkiye’nin 1990-2019 dönemi yıllık verileriyle Ar-Ge harcaması ile ithalat ve ihracat arasındaki ilişki zaman serisi analiz yöntemiyle araştırılmıştır. Çalışmada birim kök sınaması klasik ADF ve PP testlerinin yanı sıra Lee Strazicich LM birim kök testi ile sınanmıştır. Bu testler sonucunda Ar-Ge değişkeninin kırılmalar etrafında durağan olduğu, ithalat ve ihracat değişkenlerinin ise birinci farkta durağan hale geldikleri belirlenmiştir. Değişkenler arasındaki eşbütünleşme ve katsayı tahminleri, farklı durağanlık seviyesinde analize imkan veren, ARDL sınır testi yöntemiyle araştırılmıştır. Elde edilen analiz sonuçlara göre Ar-Ge harcamaları ile ithalat ve ihracatın eşbütünleşik olduğu tespit edilmiştir. Ayrıca hesaplanan uzun ve kısa dönem katsayılar sonucunda Ar-Ge harcamalarının ithalat ve ihracatı uzun dönemde pozitif ve anlamlı bir şekilde etkilediği saptanmıştır. Kısa dönemde ise Ar-Ge harcamalarının ihracatı pozitif, ithalatı negatif etkilediği belirlenmiştir. Bu iki etkinin de istatistiki açıdan anlamlı olduğu tespit edilmiştir. Ayrıca Ar-Ge harcamalarının ihracata etkisinin ithalata etkisinden daha fazla olduğu belirlenmiştir.

The Influence of Credit Risk Management Indicators on Profitability Attributes: Empirical evidence from the State-Owned Commercial Banks in Bangladesh

Purpose: The purpose of this study is to examine the impact of credit risk management indicators on the performance of Bangladesh’s state-owned commercial banks. Six state-owned commercial banks’ perspectives and board information are used in the examination. Methodology: In order to conduct the examination, Stata 14.2 programming was used. It is used to determine how rational it is to distribute an arbitrary variable that is fundamental to the informative index. Then, the Leven Lin Chu unit root test and Hadri LM unit root test were used to determine if the variables used were stationary. Findings: I looked at correlation coefficients and variance-inflating factors to see if there were any difficulties with multicollinearity among free factors. The focus also employs illuminating factual examination to outline the impact of credit risk and board factors on productivity, as well as relationship lattice to assess the degree of connections between the autonomous factors and the benefit of state-owned commercial banks. Using a fixed impact and pooled OLS relapses, I can see that credit hazard significantly affects benefits. According to the law, banks are obligated to enhance their credit hazard. It is important to keep an eye on non-performing advances, functional gambles, and financing cost hazard in addition to the subjective resource portfolio that was considered to have a significant impact on productivity. Practical Implications: The findings of this analysis have some managerial implications. This study gives managers actual evidence on the impact of credit risk management indicators on bank performance, allowing them to discover ways to improve bank performance. Policymakers, regulators, and bank management should pay more attention to credit risk management indicators. Regulators should guarantee banks implement credit risk management rules to build a robust banking industry and achieve sustainable development goals. Originality: This paper is, as far as we know, the first detailed empirical analysis using the most recent data to look at how credit risk management indicators affect the performance of Bangladesh’s state-owned commercial banks.

Are Shocks to Petroleum Products Consumption Permanent or Temporary: A New Evidence from LM Unit Root Tests with Structural Breaks

The purpose of this paper is to examine whether shocks to the consumption of petroleum products in Jordan have permanent or temporary effects. This has been accomplished by applying Lee and Strazicich (2003) test of unit root with structural breaks to investigate the stationarity properties related to the time series of petroleum products consumption over the period 1961 to 2019. Empirical findings lend evidence that the consumption of petroleum products is a unit root process, implying that shocks to petroleum products consumption has permanent impact, and this consumption does not turn back to its time trend path following a shock. This indicates that there are high possibilities of energy demand management and conservation policies targeted towards achieving the intended goals in the long-run. In fact, this is compatible with the government energy strategies aimed at reducing the consumption of fossil oils. Doi: 10.28991/esj-2021-01279 Full Text: PDF

MDAÜ ÜLKELERİNDE BOŞANMANIN SOSYOEKONOMİK NEDENLERİ ÜZERİNE AMPİRİK BİR ARAŞTIRMA

The paper examines the relationship between divorce rates and socioeconomic variables in CEE countries whose economic and political regimes were changed from communism to capitalism. Factors such as regime change have been ignored, although there are many studies that examine the impact of changing gender roles and female labor force participation on the family structure. This study focuses on the impact of socio-economic impacts on divorce as well as regime change. Panel LM unit root test was used with the aim of finding out whether the destabilizing effect of divorce rates in CEE countries was permanent after the regime change. Also, panel data regression was employed to determine the social l factors that affected divorce rates from the years between 2008 nd 2017. The Czech Republic appears to have left behind the shock effect it experienced on divorce rates, which is considered to be a result of the country’s closeness to liberal values from past to present. The result of panel regression was supported the fact that growth rate and openness have a significant negative effect on divorce rates.

The comovement between epidemics and atmospheric quality in emerging countries

ABSTRACT This research examines the short- or long-term relationship between epidemics and atmospheric quality via panel data of 69 countries over the period 1990–2019. By employing the panel univariate LM unit root test, panel cointegration tests with multiple structural breaks, and FMOLS estimations as well as the panel vector error correction model (VECM), we find that a bi-directional relationship among variables exists in the full sample. More importantly, from a long-term perspective we also note that the impact of epidemics on atmospheric quality is negative. Therefore, we hypothesize that this may be related to the retaliatory emissions of companies after epidemics and poor government supervision. For a more in-depth investigation, we take CO2 emissions of the industrial and transportation sectors as the proxy variables and see that the more developed an economy is, the greater is the cointegration between epidemics and atmospheric quality. Our research offers implications for policy makers, such that improving atmospheric quality is an important way to prevent epidemics, and in order to alleviate and eliminate the spread of epidemics governments should pay more attention to environmental control.

Determining the Nominal Exchange Rate in Sri Lanka: An Application of The Lagrange Multiplier Structural Break Unit Root Test and The Ardl Co-Integration

Bihari There is a vast literature on the impact of exchange rate on developing countries’ economies. This paper studies the determinants of nominal exchange rate fluctuations in Sri Lanka. It employs recent secondary macroeconomics monthly time series data (2011:01-2018:07) and tests the ARDL co-integration approach with structural break LM unit root test, which was introduced by Lee and Strazicich in 2013. Results of the bound test show that the nominal exchange rate has a long-term relationship with its determinants. Further, our empirical findings suggest that a strong depreciating link exists between the nominal exchange rate and money supply in Sri Lanka during the sample period. Outcomes are signals that identify new lessons for policy-makers to implement consistent foreign exchange policies. Doing so must consider both monetary and fiscal policy simultaneously.

ARE SHOCKS TO ENERGY CONSUMPTION IN USA PERMANENT OR TEMPORARY?: SECTORAL ANALYSIS

Energy is one of the most important strategic factors for sustainable economic growth. Energy consumption is investigated within the framework of four sectors, i. e. residential sector, commercial sector, industrial sector and transport sector. The energy consumption levels of these sectors, long term consumption amounts and the sustainability of this consumption as well as whether these shocks are temporary or permanent play a role in the development of energy policies for countries. The energy consumption of the US, listed under the developed country category, has been increasing steadily in connection with its economic growth. In this respect, the purpose of this study is to analyze at the sectoral level whether the shocks in the USA’s sectoral energy consumption are temporary or permanent. The annual data over the period 1949 – 2014 are analyzed using the RALS LM unit root test method in this study investigating whether the shocks in total energy consumption in the US economy are temporary or permanent as per sectors. The study introduced two basic contributions to literature. The first contribution is that it is the first study in literature investigating the situation at the sectoral level in the US. The second contribution is the methodology used. The RALS LM unit root test offers two basic advantages. Firstly, the RALS LM test does not depend on the nuisance parameter and secondly, the RALS LM test utilizes information on non-normal errors. According to the analyses made, the shocks in energy consumption in the transport sector of the US have got a permanent impact.

Convergence in obesity and overweight rates across OECD countries: evidence from the stochastic and club convergence tests

Obesity has become a serious public health problem in the last two decades and affects not only developed countries but also the developing world. To date, despite all attempts to stop its increase, obesity remains a serious social problem, and obesity-related diseases have a significant cost on the health system. In this paper, we investigate the convergence of obesity rates, overweight rates, and body mass index (BMI) across 35 OECD countries over the period 1975–2006. The empirical findings of the paper are expected to have important policy implications to better inform policymakers. In addition to the traditional convergence tests, this paper uses a newly developed LM based panel unit root test with endogenously determined structural breaks to test for the stochastic convergence. Given the shortcomings of traditional and stochastic convergence tests in light of the possibility of multiple equilibria associated with groups of countries following different convergence paths, the club convergence algorithm is also employed. Traditional cross-sectional tests show that both β- and σ-convergence of the variables of interest exist across sampled countries. Moreover, the univariate LM unit root test results provide support for convergence in the relative BMIs, obesity rates, and overweight rates for a majority of the OECD countries. The club convergence test results, however, suggest the rejection of full panel club convergence only in BMI variables and overweight rates for females and the presence of a certain number of clubs for these variables.

Measuring Interest Rate Risk Considering Key Factors Affecting the Net Interest Margin (NIM) Ratio of Commercial Banks in Bangladesh

This paper attempts to reveal how the commercial banks operating in Bangladesh have measured interest rate risk using Interest sensitivity analysis along with considering the impact of key factors affecting the profitability measured with Net interest margin of banks under Bank specific as well as macro-economic environment. Interest sensitivity (IS) GAP analysis has been deployed to measure the degree of interest rate risk followed by a panel data regression model considering a comparative analysis among fixed effect within group, random effect GLS and Pooled OLS method adopted to measure the causation between Net interest margin and Bank specific along with Macroeconomic factor to accomplish the objective of this paper. In IS GAP along with relative IS GAP analysis, two banks are found to be liability sensitive posing a risk of reducing the net interest margin (NIM) if interest rate has been increased and rest of the banks are found to be asset sensitive again postulating risk of reducing the NIM if market rate interest has been decreased considering the ten years’ data regarding rate sensitive assets (RSA) and rate sensitive liabilities (RSL) of four commercial banks selected using convenience sampling approach. Moreover, Panel Data regression model depicts how several key factors such as degree of risk aversion, credit risk and quality of management, Average operating cost, size of banks, implicit interest payments may significantly affect this NIM ratio measuring the profitability of banks in Bangladesh followed by several diagnostic tests such as model specification test using hausman & LM test, multicollinearity test, heteroscadisticy test and unit root test conducted to check the validity of models. Keywords: IS GAP, NIM ratio, Relative IS GAP, Fixed effect, Random effect, OLS method. DOI: 10.7176/EJBM/12-15-08 Publication date: May 31 st 2020

Response surface estimates of the LM unit root tests

This paper provides the response surface function estimates for the LM unit root tests. They can be used effectively to obtain relevant critical values and p-values of the tests with structural changes up to three breaks, different sample sizes, and different lag orders.

Stochastic convergence in per capita CO2 emissions: Evidence from emerging economies, 1921–2014

Abstract We employ the recently developed LM and RALS-LM unit root tests that allow for endogenously determined structural breaks to study stochastic convergence in relative per capita CO2 emissions over the period 1921 to 2014 for a balanced panel of emerging market economies. The results provide mixed evidence of the presence of stochastic convergence. In particular, stochastic convergence is achieved for eleven out of the seventeen countries under investigation. This implies that the energy regulatory framework in these countries needs to be revaluated in order to reduce the carbon footprint. To further comprehend the factors behind the observed disparities in emission stability, we analyse the determinants of the identified groups. An examination of the determinants of the observed behaviour in relative per capita CO2 emissions reveal that income, population, financial development and trade are significant drivers, with trade predominantly playing a larger role in emission growth. Also, weak evidence is found in terms of a catching-up effect in the growth of relative per capita CO2 emissions.

Convergence in Income Inequality Across Australian States and Territories

This paper investigates stochastic convergence in income inequality across Australian states and territories since the end of World War II by utilising the LM and RALS-LM unit root tests that allow for endogenously determined structural breaks. We find that income inequality for Australia’s capital city—the Australain Capital Territoy—converges to a stable steady-state when we account for endogenously determined trend-breaks. The null hypothesis of a unit root is rejected when utilising the two-break unit root test for New South Wales, Northern Territory, Queensland, South Australia, Tasmania and Western Australia indicating that income inequalities in these states converge to a stable steady-state when accounting for multiple structural breaks. In contrast, the state of Victoria consistently shows evidence of divergence regardless of the number of endogenously determined structural breaks. Structural changes in income inequality across states and territories may be linked to the mining boom, the transition from manufacturing to a service-based economy, changes in government welfare, and favourable changes in tax policies and superannuation.