Quantile Unit Root Test Research Articles

Does asymmetric persistence in convergence of the air quality index (AQI) exist in China?

In recent years, China's air pollution has caused significant concern in the academia. China is the hub of business and financial activities, with the most populous cities. It is important to determine the convergence and asymmetric persistence of air quality index (AQI hereafter) in China to achieve sustainable development goals, especially the ones related to the environment. This paper uses the Fourier quantile unit root test to check for inter-regional convergence of monthly AQI for 74 cities across China from January 2013 to July 2019. For a comparative baseline analysis, five conventional univariate and quantile unit root tests are also conducted. The empirical outcomes show that the Fourier quantile unit test exhibits a significant advantage in detecting smooth breaks and evaluating the asymmetric behavior and mean-reverting properties of AQI. Moreover, the monthly AQI in 70 out of 74 C0hinese cities are stationary processes. These findings not only focus on the appropriate use of relevant modeling techniques of smooth breaks and asymmetries in the AQI series of the 74 Chinese cities but also provide crucial environmental sustainability and economic implications for AQI regulation policies.

The COVID-19 Black Swan Crisis: Reaction and Recovery of Various Financial Markets

This paper examines and compares financial market reaction and recovery of four broad classes of financial assets – equity indexes, precious metals, 10-year benchmark bonds and cryptocurrencies, to the COVID-19 pandemic. Using the Yang and Zhao (2020) quantile unit-root tests for return persistence, we find heterogeneity in reactions and recovery patterns not only across asset classes, but also within them. Specifically, we find strong potential for mean reversion in equity markets even at high levels of shocks. While gold offers limited mean reversion, platinum shows very strong resistance to the COVID-19. Government bonds show small declines in value to the COVID-19 in addition to high persistence. Cryptocurrencies, as a group, turn out to be the riskiest in the long-term, with more than a 50% decline in value coupled with high degrees of persistence. Our results raise questions as to the safe haven characteristics of the newly-popular Bitcoin. Our findings are useful for policy makers and investors through a better understanding of differences in the potential for mean reversion provided by different asset classes.

Does Unemployment Still Follow Hysteresis Hypothesis in Nigeria? Evidence from Linear and Nonlinear Unit Root Test Methods

In the face of persistent rise in unemployment figure in Nigeria, this study re-examines the unemployment hysteresis hypothesis by deploying both linear and nonlinear unit root estimation techniques. Using Nigerian unemployment rate data from 1970 to 2017, evidence from the adopted unit toot test techniques, except the quantile unit root test, showed that unemployment hysteresis hypothesis holds in Nigeria. This implies that when a shock that affects unemployment occurs, there is a high tendency that the effect would be permanent. However, the finding from the quantile unit root test sheds light on the need for a timely policy response. If the policy interventions such as fiscal policy and other forms of policies are taken regularly, especially at every quarter, the tendency for unemployment to revert to its pre-shock state is high.

Convergence in per capita CO2 emissions: evidence from nonlinear unit root tests in top four oil exporter countries

PurposeThis paper aims to examine the stochastic convergence of the per capita CO2 emissions among the top four crude oil exporter countries, namely, Canada, Iraq, Russia and Saudi Arabia, from 1960 to 2017. Assessing the stationarity and unit root properties of the environmental series in these countries is important as their large fossil fuel resources increases the potential for rising CO2 emissions compared to other countries.Design/methodology/approachIn addition to implementing the conventional unit root tests, the authors also benefit from the application of three nonlinear unit root tests, namely, wavelet unit root test, nonlinear unit root test of Güriş (2019) and the Fourier quantile unit root test. These methods are robust to the presence of possible structural breaks and other forms of nonlinearities, while the wavelet unit root test enables us to examine the stochastic behavior of the variables in both time and frequency domains. Hence, they all provide more reliable inferences on the convergences of the CO2 emissions compared to their standard competitors.FindingsThe standard unit root test results show strong evidence in favor of non-stationarity in all countries. This conclusion supports the results of the other nonlinear unit root tests and the overall findings of the Fourier quantile unit root test. The wavelet unit root test provides a controversial finding. However, due to its limitations, its findings must be interpreted with caution. The details of the Fourier quantile unit root test indicate that per capita CO2 emissions follow mean-reverting properties in middle quantile ranges for Canada, Russia and Iraq. This validates the asymmetric behaviors of per capita CO2 emissions in these countries.Originality/valueThe novelty of the work can be stated in two ways. First, among the available studies, this is the first paper to emphasize the importance of examining the convergence of per capita CO2 emissions among the top four oil exporters. Second, to the best of the knowledge, no study has yet been undertaken in which all these methods have been simultaneously applied. Sustainable environmental policies depend heavily on the CO2 series’ properties. Thus, the findings can provide significant environmental and economic implications for policymakers to construct feasible and optimal policies in climate change mitigation.

Fourier nonlinear quantile unit root test and PPP in Africa

AbstractWe test the PPP hypothesis in 29 African countries using a newly developed nonlinear Quantile unit root test with a Fourier function which accounts for smooth breaks. Simulation indicates that the proposed new test has higher power than the conventional Quantile unit root test as proposed by Koneker and Xiao (2004). Our empirical results provide support for the PPP hypothesis in 21 out of 29 African countries, a unique discovery using their real effective exchange rates. It appears that incorporating Fourier function to nonlinear Quantile unit root test gets us closer and closer to solving the PPP puzzle in Africa.

The Convergence of Sulphur Dioxide (SO2) Emissions Per Capita in China

As the third-largest SO2 emitter in the world, China is facing mounting domestic and external pressure to tackle the increasingly serious SO2 pollution. Figuring out the convergence and persistence of sulfur dioxide (SO2) emissions matters much for environmental policymakers in China. This study mainly utilizes the Fourier quantile unit root test to survey the convergence of the SO2 emissions per capita in 74 cities of China during the period of December 2014 to June 2019, by conducting five traditional unit root tests and a quantile root unit test as a comparative analysis. The empirical results indicate that the SO2 emissions per capita in 72 out of 74 cities in China are convergent in the sample period. The results also suggest that the unit root behavior of the SO2 emissions per capita in these cities is asymmetrically persistent at different quantiles. For the cities with the convergent SO2 emissions, the government should consider the asymmetric mean-reverting pattern of SO2 emissions when implementing environmental protection policies at different stages. For Hefei and Nanjing, the local governments need to enact stricter environmental protection policies to control the emission of sulfur dioxide.

The asymmetric effects of oil price on sectoral Islamic stocks: New evidence from quantile-on-quantile regression approach

This study extends the existing literature by examining the impact of oil prices on the Dow Jones (DJ) Islamic index and sectoral stock indices. In particular, enhanced empirical estimations are used to provide an in-depth understanding of the sensitivity of stock indices towards oil price fluctuation. Quantile unit root test and quantile cointegration tests are used to examine the integrating properties of the underlying variables. Moreover, we use Quantile-on-Quantile (QQ) approach to examine the impact across diverse quantiles of explanatory and outcome variables. Findings of the QQ estimate indicates that lower (upper) quantiles of oil prices negatively affect the upper (lower) quantiles of the DJ Islamic index. In addition, either upper or lower quantiles of both markets indicate a positive relationship. The findings for financial sector, healthcare sector, consumer goods, consumer services, oil & gas sector, utility sector, and industrial sector are consistent with the findings of DJ Islamic index. Finally, for basic material, technology and telecommunication sectors, a positive relationship is found across different quantiles. This study provides policy implications based on the findings of these enhanced methodologies.

Does the carbon price in Chinese seven carbon markets converge or not? — Based on the Fourier quantile unit root test

While previous studies focus on linear unit root test to study the convergence of carbon price in some developed countries and the results might be biased due to the lower power of these linear unit root tests. China provides an interesting arena to investigate its carbon price convergence due to its fast economic development since its inception of open door policy in the late 1970s. In this paper that we use the non-linear quantile unit root test (in terms of Fourier function) to study the convergence of the carbon price in China’s seven carbon markets over the period of April 6, 2014 to February 17, 2017 Empirical results from our study demonstrate that the carbon prices in Beijing, Shanghai, Shenzhen, Guangzhou and Hubei carbon market do converge on all quantiles. However, the prices of Chongqing and Tianjin carbon emission markets though converge but only converge under certain quantiles. Apparently, that our empirical have important policy implications for Chinese government conducting carbon dioxide emission reduction policy during its economic development process.

Analyzing slowdown and meltdowns in the African countries: New evidence using Fourier quantile unit root test

In this paper, we analyze growth dynamics in the 25 African countries over the period 1950–2016. To this end, first, we test the stochastic properties of real per capita GDP series. While conventional unit root and standard quantile unit root tests do not reject a unit root, using a novel quantile unit root test which allows for smooth breaks, we could find the results in favor of trend stationarity of 16 out of 25 real per capita GDP series. Our results indicate that in some countries positive shocks to real per capita GDP series have permanent effect and in some of them, the negative shocks. Whereas all of African countries in our sample specialized in producing and exporting primary products, hence to have favorable growth performance, they have to manage terms of trade shocks to avoid large swings in the real per capita GDP.

Are regional house prices stationary in Iran? New evidence using Fourier quantile unit root test

PurposeIn the Iranian economy, investing in the housing market has been very important and beneficial for investors and households, because of inflationary environment, low real interest rates, underdeveloped financial and tax systems and economic sanctions. Hence, prediction of house prices is the main concern of housing market agents in the economy. The purpose of this paper is to test the stationary properties of Iran's provinces to improve the prediction of future housing prices.Design/methodology/approachIn this paper, the authors have tested the stationary properties of 20 Iran’s province centers over the period from 1993 to 2017 using a novel Fourier quantile unit root test and conventional ordinary/generalized least squares (O/GLS) linear unit root/stationary tests.FindingsAccording to conventional O/GLS linear unit root/stationary tests, most of the house prices series exhibit random walk behavior, whereas by applying the Fourier quantile unit root test, the null hypothesis of unit root is rejected for 15 out of 20 series. Other results indicated that house prices of cities responded differently to positive and negative shocks.Originality/valuePrevious studies only addressed conventional OLS or GLS linear unit root or stationary tests, but novel Fourier quantile unit root test was not used. New results were obtained based on this unit root test, that, as a priori knowledge, will help benefiting from the positive effects, or avoiding being victimized by the negative effects.

CO2 emissions converge in China and G7 countries? Further evidence from Fourier quantile unit root test

G7 countries and China are considered not only the biggest energy producers globally but also the largest CO2 emission groups of countries among the world. In this study, we apply the Fourier quantile unit root test to investigate whether CO2 emissions converge in China and G7 countries using per capita CO2 emissions data over 1950–2013. While traditional unit root test results indicate that per capita CO2 emissions do not converge among these G7 countries and China, empirical results from the Fourier quantile unit root test point out that the CO2 emissions did converge in Germany, Italy, and the United Kingdom. Although the results of this study do not find strong CO2 emission convergence in the other five countries (i.e., Canada, France, Japan, the United States, and China), the CO2 emissions did converge in certain quantiles for these five countries. Our empirical results have important policy implications for the governments of G7 countries and China to implement the effective energy policy to reduce the CO2 emissions.

Testing the long-run PPP for Turkey: new evidence from the Fourier quantile unit root test

ABSTRACTThis study analyses the long-run validity of the purchasing power parity (PPP) between Turkey and its major trading partners (China, Euro Area, Russia, United Kingdom, and United States) by using the Fourier quantile unit root test. Fourier quantile unit root test results show that PPP is valid for all countries. Additionally, the Fourier quantile unit root test presents more evidence in favour of the PPP hypothesis in comparison to conventional and other Fourier-type unit root tests.

Testing the theory of PPP for emerging market economies that practice flexible exchange rate regimes

ABSTRACTThis study aims to test the long-run validity of purchasing power parity by using Fourier quantile unit root and Fourier cointegration analyses for 12 emerging market economies that practice a flexible exchange rate regime. With the Fourier approach, structural breaks are modelled as a gradual and smooth process. Fourier quantile unit root test results show that real exchange rate series are stationary for Colombia, India, Philippines, Poland, South Africa, and Turkey. On the other hand, Fourier cointegration test results reveal that purchasing power parity is valid for Brazil, Colombia, India, Mexico, South Africa, Thailand, and Turkey.

Fourier quantile unit root test for the integrational properties of clean energy consumption in emerging economies

Since the adoption of the Kyoto protocol in 1997 and its entry into force in 2005, as well its aftermath such as the Doha amendment and Paris agreement, national policies have become more conscious of the usage of clean energy, mostly the different forms of renewable energy and nuclear energy. Ratifying countries and signatories had committed themselves to binding targets for the reduction of greenhouse emissions by 8% with respect to 1990 levels until 2012, also based on the particular contribution to global emissions from each country. This paper examines the integrational properties of clean energy consumption from eight emerging economies which are also high greenhouse gas emitters. The empirical results show that the clean energy consumption is stationarity for Brazil and Philippines by using a quantile unit root test without smooth breaks (Koenker and Xiao, 2004). However, after capturing the smooth breaks (Bahmani-Oskooee et al., 2018), we find the clean energy consumption of China, Pakistan and Thailand are stationary. The time-varying deterministic trend with smooth breaks is more fitted to the path of clean energy consumption in comparison to the deterministic trend without smooth breaks. The paper suggests economic insights useful for policy making.

REAL INTEREST RATE PARITY AND FOURIER QUANTILE UNIT ROOT TEST

ABSTRACTReal interest rate differentials usually exhibit two properties; structural breaks and asymmetric dynamics. In this paper, we use various types of Quantile Unit Root Test (QURT) which accounts for both properties. Unlike previous research, we reject the unit root in the real interest rate differentials in 18 out of 21 OECD countries as well as in 4 out of 5 BRICS countries using QURT with sharp and smooth breaks.

Asymmetric persistence in convergence for carbon dioxide emissions based on quantile unit root test with Fourier function

Figuring out the convergence and persistence of per capita CO2 emissions matters much for environmental policy makers in both developed and developing countries. The Kyoto Protocol aims at avoiding threat from climate warming for human beings. CO2 emissions have been viewed as the main cause of climate change in recent decades. Thus, loads of empirical studies contribute to investigate the convergence of per capita CO2 emissions by implementing various econometric models including as many sample countries as possible. By applying a battery of univariate unit root tests, quantile unit root test, and a newly developed quantile unit root test with Fourier function, we re-investigate the convergence, mean-reverting properties and asymmetric behavior of per capita CO2 emissions in 21 OECD countries. The findings show that per capita CO2 emissions of Austria, Finland, Japan, Netherlands, New Zealand, Norway, Sweden, Switzerland and the US perform converging as a whole from the perspective of the FQKS statistics. Besides, mean-reverting properties are identified for Austria, Finland, Japan, Netherlands, Norway, Sweden, Switzerland and the US when economy is in recession. Finally, asymmetric behaviors of per capita CO2 emissions are detected at selected quantiles. All of the results provide impressive environmental economic implications for policy makers.

Asymmetric dynamics in the social contributions and social benefits nexus in Greece

This paper studies the existence of asymmetries and the presence of a causal relationship between social benefits and social contributions in Greece over the period 1999Q1–2016Q4 using threshold cointegration estimation techniques (TAR and MTAR models) and asymmetric error-correction model estimation. In doing so the study applies conventional and quantile unit root tests to examine the order of integration of the variables. The empirical results support the hypothesis that social benefits and social contributions are cointegrated with threshold adjustment and the adjustment process is asymmetric both in the short and long run. ECM model estimation indicates that the response of the government to a worsening budget is significantly larger than to an improving budget, and the adjustment path towards momentum equilibrium takes place through social contributions, when the budget is in its negative phase (below threshold). Granger causality tests and distributed lag asymmetry tests indicate that social benefits represent an exogenous variable.

Testing Hysteresis in Unemployment in G7 Countries Using Quantile Unit Root Test with both Sharp Shifts and Smooth Breaks

We apply a Quantile unit root test with both Sharp Shifts and Smooth Breaks to revisit hysteresis in unemployment for G7 countries using data for the period 1980–2017. Results from the conventional unit root tests indicate that hysteresis in unemployment does hold in half of these G7 countries during the period 1980–2017. A quantile Kolmogorov–Smirnov test fails to reject hysteresis in the unemployment hypothesis for our quarterly data but not in monthly data in G7 countries. Empirical results from our proposed quantile unit root test considering both sharp shifts and smooth breaks indicate that hysteresis in unemployment can be rejected over certain quantiles. A quantile Kolmogorov–Smirnov test results demonstrating hysteresis in unemployment does not hold in G7 countries for both monthly and quarterly data. These empirical findings have important policy implications in G7 countries.

Revisiting CO2 emissions convergence in G18 countries

ABSTRACTThis study revisits whether CO2 emissions converge in G18 countries over the period of 1950–2013. To work on this empirical analysis, we employ a more powerful quantile unit root test with per capita CO2 emissions. While conventional unit root tests fail to reject convergence in CO2 emissions in these G18 countries, quantile unit root test results demonstrate CO2 emissions converged in 5 of these G18 countries (i.e., Australia, Brazil, Canada, Germany, and India). Our empirical results have important policy implications for the governments of G18 countries to direct efficient and effective energy policies to reduce the CO2 emissions.

Re-examination of the convergence hypothesis among OECD countries: Evidence from Fourier quantile unit root test

In this paper we revisit the convergence hypothesis among OECD countries. Unlike previous research which relied upon conventional unit root tests to determine if per capita real income in each country converge toward the real per capita income of a benchmark level, we employ recently introduced quantile unit root testing procedure which also accounts for multiple and unknown structural breaks via a Fourier expansion series. Our results indicate that the negative shocks due to World wars I and II and/or financial crises have transitory effects in countries such as Japan and Germany, while in other countries like Italy and France they have permanent effects.