Multiple Structural Breaks Research Articles

Multiple Structural Breaks in Interactive Effects Panel Data Models

ABSTRACTThis paper develops new econometric methods for multiple structural break detection in panel data models with interactive fixed effects. The new methods include tests for the presence of structural breaks, estimators for the number of breaks and their location, and a method for constructing asymptotically valid break date confidence intervals. The new methodology is applied to a large panel of US banks for a period characterized by massive quantitative easing programs aimed at lessening the impact of the global financial crisis and the COVID‐19 pandemic. The question we ask is as follows: Have these programs been successful in spurring bank lending in the US economy? The short answer turns out to be: “No”.

Dynamics of Stock Prices and Exchange Rate with Structural Breaks and Asymmetry: Evidence From Türkiye

This study investigates the impacts of the nominal exchange rate on Turkish stock prices using a structural break cointegration test with endogenously determined multiple structural breaks and an asymmetric cointegration test for the period of 2002-2021. The study differs from previous research on this relation in two respects. First, it takes into account structural breaks in relation to both regimes and trends (C/S/T). Second, it extends the asymmetric cointegration with multiple structural breaks. The findings of structural break cointegration capture the break dates in line with the Turkish economics dynamics and reveal the negative effects of the exchange rates on stocks, with their significance and magnitude differing in regimes. Similarly, NARDL results indicate that negative and positive exchange rate shocks exhibit asymmetric effects on stocks for both the whole period and regimes. The overall findings demonstrate that exchange rate variations have distinctive impacts on stock prices when considering structural break and asymmetrical dynamics. In this background, policymakers and foreign investors need to take into account these dynamics when dealing with Turkish financial markets.

On the economic growth and environmental quality nexus in India

ABSTRACT This study extends prior research and takes a robust account of the effects of economic growth on environmental quality in India, using several single-equation and system estimators and considering multiple structural breaks over ‘long’ as well as ‘short’ time periods. The long-run model is estimated on annual data for the period 1951–52 to 2015–2016. The results provide robust support for the positive and significant effects of gross domestic product and financial development and for the negative effects of trade openness and domestic investment on carbon dioxide emissions. The presence of structural breaks challenges the validity of smooth and continuous relationship between income and emissions postulated in previous research. Policy intervention, in terms of the imposition of Pigouvian tax, allocation of carbon quotas and promotion of carbon ‘cap-and-tax’ and/or ‘cap-and-trade’ systems, is needed to correct market failure, to cover the external cost of pollution and to curtail the emission of carbon. It is worth subsidizing alternative sources of energy, adopting carbon-efficient technologies and switching to carbon-neutral substitutes.

Comparison of the Performance of Structural Break Tests in Stationary and Nonstationary Series: A New Bootstrap Algorithm

AbstractStructural breaks are considered as permanent changes in the series mainly because of shocks, policy changes, and global crises. Hence, making estimations by ignoring the presence of structural breaks may cause the biased parameter value. In this context, it is vital to identify the presence of the structural breaks and the break dates in the series to prevent misleading results. Accordingly, the first aim of this study is to compare the performance of unit root with structural break tests allowing a single break and multiple structural breaks. For this purpose, firstly, a Monte Carlo simulation study has been conducted through using a generated homoscedastic and stationary series in different sample sizes to evaluate the performances of these tests. As a result of the simulation study, Zivot and Andrews (J Bus Econ Stat 20(1):25–44, 1992) are the best-performing tests in capturing a single break. The most powerful tests for the multiple break setting are those developed by Kapetanios (J Time Ser Anal 26(1):123–133, 2005) and Perron (Palgrave Handb Econom 1:278–352, 2006). A new Bootstrap algorithm has been proposed along with the study’s primary aim. This newly proposed Bootstrap algorithm calculates the optimal number of statistically significant structural breaks under more general assumptions. Therefore, it guarantees finding an accurate number of optimal breaks in real-world data. In the empirical part, structural breaks in the real interest rate data of the US and Australia resulting from policy changes have been examined. The results concluded that the bootstrap sequential break test is the best-performing approach due to the general assumption made to cover real-world data.

Economic policy uncertainty and equity index in sub-Saharan African (SSA) countries: accounting for multiple structural breaks in a panel framework

Economic policy uncertainty and equity index in sub-Saharan African (SSA) countries: accounting for multiple structural breaks in a panel framework

Economic Policy Uncertainty and Stock Market Index: Fresh Insights from Augmented-ARDL and Multiple Structural Breaks

This study provides unique insights into the link between economic policy uncertainty (EPU) and stock market index in Sub-Saharan African (SSA) countries. Basically, the dearth of evidence in this perspective, especially in the context of SSA motivates this new assessment. Thus, on account of the monthly longitudinal series for 11 SSA countries over 2014M1–2023M6, the novel multiple structural break test in panel (MSBP) and cross-sectional ARDL (CS-ARDL) provide the following upshots: first, the high level of EPU worsens the region’s stock index in the short run; second, there is a long-term negative but insignificant effect of EPU on the stock index; third, EPU significantly reduces the stock index in the three identified structural break regimes, but outside it, it is insignificant; fourth, the devastating influence of EPU on stock prices is more pronounced during the COVID-19 era demonstrating that the response of the region’s stock market to EPU is highly sensitive to global shocks. The policy implication from the major findings is for the government authorities to put up plans that can strengthen the stock markets’ resilience to economic policy-induced uncertainty.

Panel Data Cointegration Testing with Structural Instabilities

Spurious regression analysis in panel data when the time series are cross-section dependent is analyzed in the article. The set-up includes (possibly unknown) multiple structural breaks that can affect both the deterministic and the common factor components. We show that consistent estimation of the long-run average parameter is possible once cross-section dependence is controlled using cross-section averages in the spirit of Pesaran’s common correlated effects approach. This result is used to design individual and panel cointegration test statistics that accommodate the presence of structural breaks that can induce parameter instabilities in the deterministic component, the cointegration vector and the common factor loadings.

The Validity of the Phillips Curve in Türkiye: Empirical Findings Based on Multiple Structural Breaks

Bu çalışmada Türkiye'de kısa ve uzun vadede Phillips eğrisinin geçerliliğini, 1960 ile 2022 yılları arasındaki enflasyon ve işsizlik verilerini içeren bir veri seti ile çoklu yapısal kırılmaları dikkate alan Carrion-i-Silvestre vd. (2009) çoklu yapısal kırılmalı birim kök testi, Maki (2012) çoklu yapısal kırılmalı eşbütünleşme testi ve Newey-West HAC Tahmincisi kullanılarak incelenmektedir. Bu çalışma, değişkenler arasındaki ilişkinin sapmasız bir şekilde elde edilebilmesi için hem birim kök analizinde hem de eş bütünleşme analizinde yapısal kırılmaları dikkate alan az sayıdaki çalışma arasında yer alması, aynı zamanda diğer çalışmalardan farklı olarak 1960’ları kapsayacak şekilde en geniş ve en güncel veri setiyle değişkenler arasındaki ilişkiyi ampirik olarak incelemesi bakımından literatüre önemli bir katkı sağlamayı amaçlamaktadır. Bulgular, Türkiye'de uzun vadede Phillips Eğrisinin geçerli olmadığını, ancak kısa vadede önemli bir ters ilişki olduğunu (enflasyon ile işsizlik arasında trade-off) göstermektedir. Kısa dönem sonuçları işsizlik oranındaki 1 birimlik artışın TÜFE’yi 0,49 düşürdüğünü göstermektedir. Bu sonuçlar, Monetarist ve Yeni Keynesyen görüşlerle uyumlu olup, politika yapıcılar için önemli ipuçları sunmaktadır. Bu doğrultuda, çalışmada Yeni Keynesyen ve Monetarist ekollerinin savunduğu görüşler ekseninde politika yapıcılara bir dizi para ve maliye politikası önerileri sunulmaktadır.

The Macroeconomic Effect of Oil Sector Crisis in Libya

This paper analyses and investigates the impact of the oil sector crisis on the Libyan economy from 2012 Q4 to 2022 Q3, using the Bai-Perron model and a structural vector autoregressive model (SVAR). The findings demonstrate that the multiple structural breaks test statistics approved that nearly all of the study's variables had a structural break at years around political division and political agreement. In contrast to inflation, the results of the impulse response functions (IRFs) indicate that the shock to oil revenue had a considerable negative impact on the money supply and exchange rate. Furthermore, the study reveals that, with the exception of claims on the government with the central bank, shocks to oil revenue are the major contributors to variance decomposition for all variables. The results reveal that oil revenue, in particular, accounts for roughly 16%, 13%, and 16% of the variance decomposition of the money supply, exchange rate, and inflation rate, respectively. As a result, the oil sector crisis is a controlling factor in the explanation of variations in these variables. The study concluded that oil sector revenues have a sensitive impact on the Libyan economy and that the latter has a strong tide with a secure environment and political stability.

Comparative Analysis of Stock Bubble in S&P 500 Individual Stocks: A Study Using SADF and GSADF Models

Stock bubbles are characterized by unpredictable price surges and subsequent declines, causing significant losses for investors. This study investigates the effectiveness of the Generalized Sup Augmented Dickey–Fuller (GSADF) test in identifying mild explosive patterns and speculative bubbles within individual S&P 500 stocks, as compared to the Sup Augmented Dickey–Fuller (SADF) test. Utilizing real-time monitoring data, this research examines unit roots, stationarity, and the ability to detect multiple structural breaks. The GSADF test consistently outperforms the SADF test in rejecting the null hypothesis, demonstrating greater sensitivity and efficacy in recognizing stock bubbles. Monte Carlo simulations address size distortions in the GSADF test, enhancing accuracy.

Multiple Structural Breaks and Inflation Persistence: Evidence from China*

Multiple Structural Breaks and Inflation Persistence: Evidence from China*

Covariate-Assisted Matrix Completion with Multiple Structural Breaks

Covariate-Assisted Matrix Completion with Multiple Structural Breaks

Does investor sentiment predict the S&P500? Evidence from the 1990s to the Covid-19 pandemic

This paper considers how the relationship between investor sentiment and the S&P500 index has changed over time. First, we identify multiple structural breaks in investor sentiment from the late-1980s through early 2023. Second, we find evidence that a positive shock to the S&P500 has a predictive and persistent effect on bullish sentiment over our identified sub-periods; however, we find that persistence wanes over the sample period. We find a corresponding effect for bearish sentiment, yet the persistence of that effect is generally similar across time. Lastly, we find that the effect of investor sentiment on market volatility is more significant in later sub-periods.

Testing Multiple Structural Breaks in the Oil Price–Stock Price Nexus in Asian Oil-Importing Countries During the Russia-Ukraine War

This study tests for structural breaks in the oil price–stock price nexus during the Russia-Ukraine War, by focusing on Asian oil-importing countries. We find evidence of structural breaks in these economies. Also, the regression results from the different regimes show that the spillover effects intensify in some countries but decline in others. The results are mixed in some countries and for the panel estimation.

Tourism in ASEAN‐5: A novel panel unit‐root test for shocks persistence with gradual structural breaks and common factors

AbstractThis study investigates whether shocks to tourist arrivals in Indonesia, Malaysia, Philippines, Singapore, and Thailand (ASEAN‐5) are permanent or transitory, given the frequent and severe external shocks experienced by the tourism industry. Using monthly data from 2000 to 2019, we employ a novel panel unit‐root test that controls for cross‐correlations, multiple gradual structural breaks, and other nonlinearities present in the data to assess the stationarity properties of tourist arrivals. Additionally, we apply a panel unit‐root test that controls for cross‐correlations and allows for abrupt structural changes for robustness. The empirical findings reveal that shocks to tourist arrivals in the ASEAN‐5 countries exert persistent effects. Our results demonstrate nonstationarity within the series, illuminated by our careful consideration of both gradual and abrupt structural breaks. This finding underscores the necessity for policy interventions to mitigate the impact of adverse shocks on the tourism industry.

The Impact of the COVID-19 Pandemic on the Use of the Menor Preço Brasil Application

The Menor Preço Brasil application, based on a version developed in the state of Rio Grande do Sul, was launched in 2019 with the aim of expanding digital services to citizens. This application provides information on the nearest establishments and their product prices based on issued invoices. With the advent of the COVID-19 pandemic, this application adapted its service to facilitate access to prevention products. We are not aware of any other similar government application that uses individual invoice data to support citizens in finding products closer to them at better prices. This study aims to verify the impact of the COVID-19 pandemic on the use of the Menor Preço Brasil app service. To this end, it investigates both the correlation between confirmed cases of COVID-19 in Brazil and the changes in the application’s functionalities with the variation in citizens’ queries to the application. It is a quantitative approach. For this purpose, Bai and Perron’s method of identifying multiple structural breaks and regression models are employed. The results indicate five structural breaks in the number of queries to the application, and that a 1% increase in COVID-19 cases led to a 0.2% increase in queries. These results confirm that user behavior related to the Menor Preço Brasil application was influenced not only by changes in the number of confirmed COVID-19 cases but also by those in the app’s features and inflation rates. The literature also tends to consider the relevance of the relative effects of risk aversion on behavior, especially in the relationship with the tax authorities. This study reinforces the position of the initial relevance of risk aversion and when trust gradually strengthening the aversion to losses diminishes. The public sector has progressively increased the availability of digital services over time, and the results of this study underscore their significance in coping with extreme situations, such as pandemics, natural disasters, and other challenges to accessing goods and services.

The effect of inflation on the budget deficit in Turkiye: Evidence from cointegration test with multiple structural breaks

In determining the relationship between the budget deficit and inflation in literature, the effect of the budget deficit on inflation has been widely focused on. Although the impact of inflation on the budget deficit is highly significant, there has been a lack of sufficient research on this matter. There are two different views put forward on this issue. The first of these is the Tanzi effect; argues that an increase in inflation will cause a real decrease in tax revenues and therefore the budget deficit will increase. The opposing view is known as the Patinkin effect and suggests that the budget deficit will decrease because inflation will reduce real public expenditures. In this study, the effect of inflation on the budget deficit was investigated for the period 1960 2022 in Turkiye. Considering that the data period may contain many structural breaks, Carrion-i-Silvestre unit root test and Maki cointegration test were used. The years 1995, 2002, 2007, 2011 and 2018 were determined as the break dates. According to the results, the inflation rate has an increasing effect on the budget deficit in the period when there is no break. The overall result did not change when the effect of breaks was included. With these findings, it can be said that the Tanzi effect is more dominant in Turkiye.

The dynamics of price discovery between the U.S. and Chinese soybean market: a wavelet approach to understanding the effects of Sino-US trade conflict and COVID-19 pandemic

During geopolitical crises, the price stability of agricultural commodities is critical for national security. Understanding the dynamics of pricing power between the U.S. and China and how it varies over time can help smaller nations navigate unpredictable moments. This study uses a unified framework and wavelet approach to examine soybean price discovery in the U.S. and China from the standpoints of price interdependence and information flows. We begin by illustrating the integrated link between the soybean futures markets in the U.S. and China, which includes multiple structural breaks. The pricing difference between the two nations acts as the primary information spillover route for their integrated relationship. Furthermore, we show that the direction and degree of information spillover change dramatically in proportion to the strength of the U.S.–Chinese soybean interaction. Finally, we find that China’s recent retaliatory tax on the U.S. soybeans gave the Chinese market a more powerful position in soybean futures price discovery. After the first-stage trade deal was reached, and during the epidemic phase of the coronavirus pandemic, the pricing power of the U.S. soybean market showed no signs of full recovery.

Budget Deficit and Economic Growth in Nigeria: A Further Assessment

As revenue under-performs while the debt profile keeps increasing, the government of Nigeria targets fiscal viability through appropriation. However, in response to various fiscal operations regarding the deficit and the growth in the country, several studies have examined the relationship and come up with divergent findings. On this premise, and while building on previous effort, the objective of this paper is to assess the effect of budget deficit on economic growth over the period 1981-2021 in Nigeria. On the assumption that the economic growth is influenced by other factors aside the main sources of budget deficit, the individual average effect of FDI, ODA, and the public investment was also examined. The pre-estimation diagnostics used the ADF, PP, KPSS method, as well as, Bai-Perron multiple structural break methodology. Moreover, following the unit-root results, the ARDL technique was employed for model estimation. Consequently, whereas a two-way causal relation was established between the economic growth and FDI, a one-way causality was rather found to run from each of budget deficit, ODA, and a public investment to economic growth. Furthermore, the analyses revealed that public investment positively affects the economic growth in both short- and long-run while the budget deficit positively affects in the short-run as against negatively in the long-run. Thus, the government is advised to intensify efforts at boosting public investment to help augment economic growth as the budget deficit is negatively effective in the long-run.

Neo-Fisher Yaklaşımından Döviz Kuru, Faiz ve Enflasyon Spiralinin Değerlendirilmesi: Türkiye Örneği

In this study, it has been determined whether the Neo-Fisher effect is valid in Turkey, and an examination has been made of the exchange rate, inflation, export, and import effects within the framework of the applied interest policies. In the study, structural break time series analysis was used to examine the consumer price index, nominal interest rates, real effective exchange rate, and export-import linkages in Turkey with monthly data in the period 2003:M1-2021:M9. Lee-Strazicich unit root test was used for multiple structural break unit root test, and the ARDL (Autoregressive Distributed Lag Bound Test) method with dummy variables was used for long and short term relationships between series. In the analysis findings, the existence of long-term and short-term cointegration between exports, imports, exchange rates, interest rates and inflation has been determined. Exports and imports are most affected by the exchange rate in both the long and short run. Inflation is affected by both the exchange rate and interest rates in the long and short run. The effect of the exchange rate on inflation is much greater than that of interest rates.