Panel-based Unit Root Tests Research Articles

Are Insurance Premiums Stationary in China?

This study applies the sequential panel selection method (SPSM), proposed by Chortareas and Kapetanios (2009), to investigate the time-series properties of insurance premiums in China. This method can clearly identify how many and which series in a panel are stationary processes by classifying a whole panel into a group of stationary series and a group of nonstationary series. Time-series data of the total insurance premiums collected from 36 regions in China during the period from January 2006 to December 2011 are used. The empirical results from the SPSM and several other panel-based unit-root tests are compared, and the SPSM tests unequivocally indicate that insurance premiums are stationary for most of the 36 regions under study. Our test results have important economic and policy implications for China.

Are there housing bubbles in South Africa? Evidence from SPSM-based panel KSS test with a Fourier function

This study applies Panel KSS Test with a Fourier function through the Sequential Panel Selection Method, proposed by Chortareas and Kapetanios (2009), to test whether housing bubbles exist in South Africa using the ratio of housing price to income in 9 provinces (i.e., Eastern Cape, Free State, Gauteng, KwaZulu-Natal, Limpopo, Mpumalanga, North West, Northern Cape, and Western Cape). Whereas other panel-based unit root tests are joint tests of a unit root for all members of a panel and are incapable of determining the mix of integrated of order zero (I(0)) series and integrated of order one (I(1)) series in a panel setting, the SPSM-based panel KSS with a Fourier function can clearly identify how many and which series in the panel are stationary processes by classifying a whole panel into a group of stationary and non-stationary series. The empirical results from several traditional panel-based, as well as standard pure time-series unit root tests, indicate that house price/income ratios for the nine provinces studied here are either stationary or non-stationary. However, results from the SPSM-based panel KSS with a Fourier function unequivocally indicate that house price/income ratios are stationary for the 9 provinces under study. These results indicate that housing bubbles do not exist in the 9 provinces of South Africa. Our test results have important economic and policy implications for South Africa.

Are there housing bubbles in South Africa? Evidence from SPSM-based panel KSS test with a Fourier function

This study applies the panel KSS test with a Fourier function through the sequential panel selection method, proposed by Chortareas and Kapetanios (2009), to test whether housing bubbles exist in South Africa using the ratio of housing price to income in nine provinces (i.e., Eastern Cape, Free State, Gauteng, KwaZulu-Natal, Limpopo, Mpumalanga, North West, Northern Cape, and Western Cape). Whereas, other panel-based unit root tests are joint tests of a unit root for all members of a panel and are incapable of determining the mix of integrated of order zero (I(0)) series and integrated of order one (I(1)) series in a panel setting, the SPSM-based panel KSS with a Fourier function can clearly identify how many and which series in the panel are stationary processes by classifying a whole panel into a group of stationary and non-stationary series. The empirical results from several traditional panel-based, as well as standard pure time-series unit root tests indicate that house price/income ratios for the nine provinces studied here are either stationary or non-stationary. However, results from the SPSM-based panel KSS with a Fourier function unequivocally indicate that house price/income ratios are stationary for the nine provinces under study. These results indicate that housing bubbles do not exist in the nine provinces of South Africa. Our test results have important economic and policy implications for South Africa.

Are house prices in South Africa really nonstationary? Evidence from SPSM-based panel KSS test with a Fourier function

This study applies the sequential panel selection method (SPSM) to investigate the time-series properties of provincial house prices for entire, large, medium and small middle-segments of South Africa. Quarterly time-series data were collected from nine provinces in South Africa for different house-size categories over the period of 1978.Q1 to 2012.Q4. Whereas other panel-based unit-root tests are joint tests of a unit root for all members of a panel and are incapable of determining the mix of integrated of order zero (I(0)) series and integrated of order one (I(1)) series in a panel setting, the SPSM proposed by Chortareas and Kapetanios (2009) can clearly identify how many and which series in the panel are stationary processes by classifying a whole panel into a group of stationary and nonstationary series. The empirical results from several panel-based, as well as standard pure time-series, unit-root tests, indicate that house prices for the nine provinces studied here are either stationary or nonstationary. However, results from the SPSM using the panel version of the Kapetanios et al. (KSS, 2003) test with a Fourier function unequivocally indicate that house prices are stationary for the nine provinces under study. Our test results have important economic and policy implications for South Africa.

Ripple effect in house prices and trading volume in the UK housing market: New viewpoint and evidence

This study adopts the data of house prices and trading volume in the overall UK housing market and in the housing markets in the 10 major regions in the UK to estimate the ripple effect in the trading activities in the housing markets. First, this study details why the ripple effect occurs in the housing market price and volume using static and cobweb dynamic models. The results of the panel-based unit root tests indicate that the relative price and volume ratios show constancy, signifying that long-run equilibrium relationships exist between the regional and national housing markets in the UK. The frequency of the transaction volume convergence behavior is higher than that of the overall house prices.

Purchasing power parity for 15 Latin American countries: Panel SURKSS test with a Fourier function

This study applies Panel SURKSS test with a Fourier function to investigate the properties of long-run purchasing power parity (PPP) in fifteen Latin American countries over the period of December 1994 to February 2010. The empirical results from the univariate unit root and panel-based unit root tests indicate that PPP does not hold for these fifteen countries under study. However, results from the Panel SURKSS test with a Fourier function indicate that PPP is valid for these fifteen countries, with the exception of Honduras. Our results highlight the importance of incorporating both nonlinearities and structural breaks when testing the validity of long-run PPP. These results have important policy implications for these fifteen Latin American countries under study.

Revisiting purchasing power parity for African countries: with nonlinear panel unit-root tests

This study applies Panel Seemingly Unrelated Regressions (SUR) Kapetanios et al. (Kapetanios–Shin–Snell (KSS), SURKSS) tests, proposed by Wu and Lee (2009), to investigate the properties of long-run Purchasing Power Parity (PPP) in 15 African countries. The empirical results from the univariate unit root and panel based unit root tests indicate that PPP does not hold for these 15 countries under study. However, Panel SURKSS tests indicate that PPP is valid for four of these 15 countries. These results have important policy implications for these 15 African countries under study.

An empirical test of the purchasing power parity for transition economies: Panel SURADF tests

Purchasing Power Parity (PPP) for transition economies is tested using Panel Seemingly Unrelated Regressions Augmented Dickey–Fuller (SURADF) tests of Breuer et al. (2001) for the period of January 1995 to December 2008. Although the other panel-based unit-root tests are joint tests of a unit root for all members of the panel and are incapable of determining the mix of I(0) and I(1) series in the panel setting, the Panel SURADF tests test a separate unit-root null hypothesis for each individual panel member and therefore identify how many and which series in the panel are stationary processes. The PPP hypothesis is not confirmed for all the nine transition countries except Estonia and Romania when Breuer et al.’s Panel SURADF tests are conducted.

Revisiting purchasing power parity for 16 Latin American countries: panel SURADF tests

In this study, we apply the panel Seemingly Unrelated Regressions Augmented Dickey–Fuller (SURADF) tests developed by Breuer et al. (2001) to revisit the validity of Purchasing Power Parity (PPP) for 16 Latin American countries. The empirical results from several panel-based unit root tests indicate that PPP does not hold for these 16 countries under study. However, panel SURADF tests indicate that PPP is valid for 3 of these 16 countries. These results have important policy implications for these 16 Latin American countries under study.

Revisiting purchasing power parity for major oil-exporting countries using panel SURADF tests

The panel Seemingly Unrelated Regressions Augmented Dickey–Fuller (SURADF) tests advanced by Breuer et al.(2001) are used to test the validity of Purchasing Power Parity (PPP) for eight major oil-exporting countries over the 1992:06 to 2008:02. Empirical results from several panel-based unit root tests indicate that PPP does not hold for eight major oil-exporting countries under study; however, Breuer et al.’s (2001) panel SURADF tests unequivocally indicate that PPP is valid for five countries with the exception of three countries, Kuwait, Nigeria and Saudi Arabia. These results have important policy implications for these eight oil-exporting countries under study.

Purchasing power parity for 15 COMESA and SADC countries: evidence based on panel SURADF tests

In this study, the panel Seemingly Unrelated Regressions Augmented Dickey–Fuller (SURADF) tests advanced by Breuer et al. (2001) are used to test the validity of Purchasing Power Parity (PPP) for 15 countries belonging to the Common Market for Eastern and Southern Africa (COMESA) and the Southern African Development Community (SADC) over the period of December 1994 to July 2008. The empirical results from the univariate unit root and panel-based unit root tests indicate that PPP does not hold for these 15 countries; however, Breuer et al.'s (2001) panel SURADF tests unequivocally indicate that PPP is valid for three of these 15 countries.

Purchasing power parity for 10 Latin American integration association countries: panel SURKSS tests

This empirical study applies panel SURKSS tests, proposed by Wu and Lee (2009), to investigate the properties of long-run Purchasing Power Parity (PPP) in a sample of 10 Latin American Integration Association (LAIA) countries over the period January 1980 to September 2008. The empirical results from several panel-based unit root tests indicate that PPP does not hold for the LAIA-10 countries under study; however, panel SURKSS tests indicate that PPP is valid for half of these LAIA-10 countries. These results have important policy implications for these LAIA-10 countries under study.

Purchasing power parity for ASEAN-8 countries: panel SURKSS tests

This study applies panel SURKSS tests, proposed by Wu and Lee (2009), to investigate the properties of long-run Purchasing Power Parity (PPP) in a sample of ASEAN (Association of Southeast Asian Nations)-8 countries over the period January 1999 to June 2008. The empirical results from several panel-based unit root tests indicate that PPP does not hold for the ASEAN-8 countries under study; however, panel SURKSS tests indicate that PPP is valid for two (four) of these ASEAN-8 countries when the US dollar (the Japanese yen) is used as a base country. These results have important policy implications for these ASEAN-8 countries under study.

Revisiting purchasing power parity for G7 countries: further evidence based on panel SURKSS tests

This study applies panel SURKSS tests, proposed by Wu and Lee (2009), to investigate the properties of long-run Purchasing Power Parity (PPP) in G7 countries over the period January 1980 to September 2008. The empirical results from several panel-based unit root tests indicate that PPP does not hold for G7 countries under study; however, panel SURKSS tests indicate that PPP is valid for more than half of the G7 countries. Further, our results point out that the real exchange rate adjustment is mean reversion towards PPP equilibrium values in a nonlinear way. These results have important policy implications for G7 countries.

Revisiting purchasing power parity for East Asian countries: panel SURADF tests

In this study, the panel Seemingly Unrelated Regression Augmented Dickey–Fuller (SURADF) tests advanced by Breuer et al. (2001) are used to test the validity of Purchasing Power Parity (PPP) for a sample of East Asian countries over the 1985M3 to 2008M5. The empirical results from several panel-based unit root tests indicate that PPP does not hold for East Asian countries under study; however, Breuer et al.’s (2001) panel SURADF tests indicate that PPP is valid for most of the East Asian countries under study.

Purchasing power parity for G-7 countries: panel SURADF tests

In this study, the panel Seemingly Unrelated Regressions Augmented Dickey–Fuller (SURADF) tests advanced by Breuer et al. (2001) are used to test the validity of Purchasing Power Parity (PPP) for G-7 countries over the period 1980M1 to 2008M5. The empirical results from several panel-based unit root tests indicate that PPP does not hold for G-7 countries under study; however, Breuer et al.'s (2001) panel SURADF tests unequivocally indicate that PPP is valid for half of the G-7 countries.

Mean reversion in G-7 stock prices: Further evidence from a panel stationary test with multiple structural breaks

In this study, we use the newly developed and refined panel stationary test with structural breaks to investigate the time-series properties of stock prices for the G-7 stock markets during the 2000–2007 period. The empirical results from numerous earlier panel-based unit root tests which do not take structural breaks into account indicate that stock prices for all the countries we study here are non-stationary; but when we employ panel stationary test with structural breaks, we find the null hypothesis of I(0) stationarity in stock prices cannot be rejected for any of the G-7 stock markets. Our results indicate that the efficient market hypothesis does not hold in these G-7 stock markets.

Testing for Energy Market Integration in China

The paper investigates energy market integration in China by employing univariate, and panel-based unit root tests and Granger causality tests applied to a new, energy price data set. We identify price series that converge either to absolute or relative price parity. In addition we estimate the rates (speed) at which relative prices converge to their long-run values, and the direction of causality. The results show that gasoline and diesel markets are very well integrated as a whole; that once some geographically isolated regions are excluded, we can regard the coal market as integrated; however, the electricity markets is not well integrated. The estimated intercept terms are all very small and close to zero, such that most of the relative price series can be regarded as convergent to absolute price parity. The convergence rates vary little and are relatively short when compared internationally. A rich set of causal relationships are established many showing bi-directional causality between regional centres.

Innovation, Technology Transfer and Labor Productivity Linkages: Evidence from a Panel of Manufacturing Industries

The paper explores the linkages between labour productivity, innovation and technology spillovers in a panel of manufacturing industries. The roles of R&D, human capital and international trade are considered in stimulating innovation and/or facilitating technology transfer. Using panel-based unit root tests and cointegration analysis, the results indicate the existence of a single long-run equilibrium relation between labour productivity, innovation and technology transfer. Further, R&D, trade and human capital have statistically and, especially the latter, quantitatively important effects on labour productivity both directly via innovation and indirectly as they enhance technology diffusion.

Revisiting Gibrat's law using panel SURADF tests

In this study, the newly-developed Panel SURADF tests advanced by Breuer et al. (2001) are used to investigate whether the growth rate of electronics firms is independent of their size, as postulated by Gibrat's (1931) Law of Proportionate Effects. Time-series data for the total assets of 48 electronic firms in Taiwan during the 1995–2004 period are used. Whereas other panel-based unit root tests are joint tests of a unit root for all members of a panel and are incapable of determining the mix of I(0) and I(1) series in a panel setting, the Panel SURADF tests investigate a separate unit root null hypothesis for each individual panel member and are, therefore, able to identify how many and which series in the panel are stationary processes. The empirical results from several panel-based unit root tests indicate that the total assets of all firms studied here are nonstationary, implying that Gibrat's Law holds for all 48 firms; however, Breuer et al.'s (2001) Panel SURADF tests unequivocally indicate that Gibrat's Law is only valid for 27 of those firms.