Structural Break Unit Root Test Research Articles

Symmetric and asymmetric effect of energy consumption and CO2 intensity on environmental quality: using nonlinear and asymmetric approach.

This paper investigates the asymmetric impact of energy consumption and carbon dioxide (CO2) intensity on the environmental quality in Russia. The ecological footprint (a proxy for environmental quality) was used as a dependent variable, while independent variables include energy consumption, CO2 intensity, and gross fixed capital formation as a proxy of capital for time series data spanning from 1992 to 2016. To examine the asymmetric cointegration between the selected variables, the nonlinear autoregressive distributed lag (NARDL) method was used. The structural break unit root and BDS tests were used to check data stationarity and nonlinearity, respectively. Besides, the asymmetric causality test in Gauss software was employed to check the causal relationship among the variables. Among the considered variables, the asymmetric cointegration was found. A significant unidirectional symmetric causality was found running from energy consumption to ecological footprint (Wald test = 3.956*) and from ecological footprint to capital (Wald test = 10.115**), while asymmetrically, ecological footprint granger cause energy consumption (Wald test = 6.054**) and capital (Wald test = 6.739**) respectively. On the contrary, a neutral effect was found between environmental quality and CO2 intensity. From these findings, environmental policies are also discussed. Specifically, policymakers should support modern, controlled emission technologies, including nuclear and renewable energy sources and green portfolio investment. Graphical abstract.

Impact of gold and oil prices on the stock market in Pakistan

PurposeThe purpose of the study is to find out the impact of gold and oil prices on the stock market.Design/methodology/approachThis study uses the data on gold prices, stock exchange and oil prices for the period 1991–2016. This study applied descriptive statistics, augmented Dickey–Fuller test, correlation and autoregressive distributed lag test.FindingsThe data analysis results showed that gold and oil prices have a significant impact on the stock market.Research limitations/implicationsFollowing empirical evidence of this study, the authors recommend that investors should invest in gold because the main reason is that hike in inflation reduces the real value of money, and people seek to invest in alternative investment avenues like gold to preserve the value of their assets and earn additional returns. This suggests that investment in gold can be used as a tool to decline inflation pressure to a sustainable level. This study was restricted to use small sample data owing to the availability of data from 1991 to 2017 and could not use structural break unit root tests with two structural break and structural break cointegration approach, as these tests require high-frequency data set.Originality/valueThis study provides information to the investors who want to get the benefit of diversification by investing in gold, oil and stock market. In the current era, gold prices and oil prices are fluctuating day by day, and investors think that stock returns may or may not be affected by these fluctuations. This study is unique because it focusses on current issues and takes the current data in this research to help investment institutions or portfolio managers.

Do foreign banks in India respond to global monetary policy shocks? A SVAR analysis

PurposeThis paper aims to examine the role of foreign banks in transmitting global monetary policy shocks to India. Further, the authors try to explore the international bank lending channel and analyze the impact of global monetary policy on Indian macroeconomic variables.Design/methodology/approachThe authors use a structural break unit root test and structural vector autoregression on monthly data from 1998 to 2018.FindingsThe study finds that the global monetary policy is significantly determining foreign banks’ lending in India; the evidence of a portfolio re-balancing channel in the process of global monetary policy transmission to the Indian economy; the exchange rate is significantly explaining the foreign bank credit dynamism in India; and evidence of international monetary policy spillover to the Indian economy.Originality/valueThis is the first attempt to analyze the role of foreign banks in the transmission of global monetary policy shocks to India, where the literature availability is limited. The finding of ineffective domestic monetary policy on foreign bank lending opens the need for an in-depth and diversified analysis of the role of foreign banks in the transmission of domestic monetary policy.

Looking for asymmetries and nonlinearities: The nexus between renewable energy and environmental degradation in the Northwestern provinces of China

Recent industrial surge in the Northwestern provinces of China resulted in substantial energy consumption and adverse effect on the environment. Despite being less established, the Northwestern region of China has strategic importance and the use of renewable energy can potentially promote sustainable development in this region. Considering this aspect, this study aims to investigate the impact of renewable energy on environmental pollution in five Northwestern provinces of China during 1995–2014. This study uses the Nonlinear Autoregressive Distributed Lag bounds testing approach with the structural break unit root and other specifications tests. The results indicate that renewable energy positive shock has an adverse impact on the CO2 emissions of the Northwestern provinces of China. The effect of renewable energy use varies in five provinces, i.e. it is more significant in Gansu, Qinghai and Xinjiang than in Ningxia and Shaanxi. However, reduction in renewable energy consumption leads to higher level of CO2 emissions and this effect is more significant for Ningxia and Shaanxi in the long run. Furthermore, the positive shockwaves in nonrenewable energy, GDP and transportation are associated with environmental pollution in these provinces both in short run and long run. Nevertheless, the impact of negative shockwaves in nonrenewable energy consumption on environmental pollution is more significant than economic development for all provinces. Our findings suggest that: cutting down fossil fuels use can substantially improve environmental quality in these provinces; depending on the provincial geographies and government strategies, the intensity of positive impact of renewable energy towards CO2 emissions reduction differs among five provinces. Likewise, renewable energy development has abundant potential to increase the economic and ecological sustainability in the Northwestern provinces of China in the long run.

Testing deviations from PPP and UIP: evidence from BRICS economies

PurposeThis paper aims to investigate the interrelations between purchasing power parity (PPP) and uncovered interest parity (UIP) in BRICS economies, namely, Brazil, Russia, India, China and South Africa, by checking the validity of the capital-enhanced equilibrium exchange rate (CHEER) approach. Further, this study tests whether the CHEER results are data frequency-dependent.Design/methodology/approachThe present study uses monthly data ranging from 1997M01 to 2016M12 and considers the US economy as the representative foreign country. The study uses structural break unit root test and structural break cointegration technique to test the presence of economic relationships between nominal exchange rates and each of the price and interest rate differentials. Then, the study examines the validity of the CHEER approach by testing the appropriate theoretical restrictions.FindingsThe cointegration results suggest the existence of two cointegrating vectors representing UIP and PPP conditions. For all countries, the data appear to support the hypothesis that the system contains UIP and PPP relations. However, each of the international parity hypotheses is strongly rejected when formulated in isolation and jointly, leading to repudiation of the CHEER validity. Further, it is found that the results are data frequency-dependent and suggest that higher frequencies should be used as they provide additional information.Originality/valueFirst, the literature on equilibrium exchange rates in BRICS economies is scanty. BRICS economies are large-emerging economies and one of the fastest growing economies and thus entail an empirical enquiry on their exchange rates. Second, the empirical application has mainly used monthly data to test the validity of the CHEER approach. However, data frequencies could affect the results. To the best of the authors’ knowledge, this study is the first to check data frequency-dependency in examination of the CHEER approach.

The importance of renewable energy consumption and FDI inflows in reducing environmental degradation: Bootstrap ARDL bound test in selected 9 countries

This study examines the relationship between renewable energy consumption, non-renewable energy consumption, foreign direct investment, economic growth and carbon emissions for the nine countries (i.e., Denmark, Finland, France, India, Italy, Morocco, Norway, Portugal, Sweden) identified in the Climate Change Performance Index (CCPI) 2018 report. This study mainly aims to demonstrate the role of renewable energy consumption and foreign direct investment on CO2 emissions in countries with high scores in the CCPI using the newly developed bootstrap autoregressive distributed lag (ARDL) approach. For this purpose, the unit root properties of the variables are determined by sharp and smooth structural break unit root test (SOR, Shahbaz et. al., 2018). We then conduct a bootstrap ARDL test developed by McNown et al. (2018) to investigate the existence of cointegration. We also use Granger causality based on the bootstrap ARDL approach to identify causal relationships between variables. Empirical analysis results show only a few cointegration relationships between variables exist. However, we have identified significant long-term relationships between foreign direct investment, renewable energy consumption and economic growth in some countries, and our study includes important policy implications, particularly for relationship among CO2 emissions and foreign direct investment inflows.

Borsa İstanbul ile Türkiye nin Yüksek Dış Ticaret Hacmine Sahip Ülke Borsalarının Entegrasyonu: Rejim Kaymalı Eşbütünleşme Analizinden Bulgular (Integration of BIST and Stock Exchanges of Countries Having High Foreign Trade Volumes with Turkey: Empirical Evidence from Regime Shift Cointegration Analysis)

Purpose – The aim of this study is to examine the existence of a cointegration relationship under structural breaks, between Turkey and stock indices of seven countries that has a key impact over Turkey's foreign trade. Design/methodology/approach – Long term relationship between Turkey and the seven countries stock indexes for January 2000-May 2019 period is examined by Lee and Strazicich (2003) two structural breaks unit root test and Hatami-J (2008) cointegration test. Findings – According to Dickey-Fuller (ADF; 1981), Phillips-Perron (PP; 1988) and Lee and Strazicich (2003) unit root test results, the degree of integration of the series was determined as I(1). Hatemi-J (2008) cointegration test with two structural breaks shows that there is a long-term relationship between BIST100 and DAX 30, FTSE 100, IMOEX, CAC 40 and S&P 500, while there is no long-term relationship wtih FTMIB and IBEX 35. Discussion – The results of the cointegration test indicate that for different break periods there are different relationships between BIST 100 and five of the seven stock exchanges (DAX 30, FTSE 100, IMOEX, CAC 40 and S&P 500), this denotes that the structural changes occurring in the analysis period have an effect on the relationship between stock market indices. In addition, investors will be able to reduce their risks by investing in stock exchange indices which has not long term relationship (cointegration), in other words non-cointegrated instruments are suitable for portfolio diversification.

Is the tourism–growth relationship asymmetric in the Cook Islands? Evidence from NARDL cointegration and causality tests

We examine whether tourism sector development measured by visitor arrivals per capita has asymmetric growth effects in the Cook Islands using quarterly data from 2010Q1 to 2016Q3. Asymmetric cointegration, long-run elasticities, and dynamic multipliers are estimated using the nonlinear autoregressive distributed lag model developed by Shin et al. Asymmetric causality testing is done using the asymmetric vector autoregression approach with insights from Hatemi-J. We identify structural breaks using the Lee and Strazicich multiple endogenous structural break unit root test. The results indicate that a 1% increase in visitor arrivals would increase gross domestic product (GDP) per capita by 0.92%, whereas a 1% decrease in visitor arrivals would decrease GDP per capita by 0.34%. The identified breaks, 2013Q2 and 2015Q3, are positive and significant in the short run only. The causality result confirms a bidirectional association, thus mutually reinforcing the asymmetric relationship between visitor arrivals and economic growth.

Urbanization-globalization-CO2 emissions nexus revisited: empirical evidence from South Africa

The environmental effects of urbanization and globalization are still subject to debate among scholars. South Africa is the most globalized, most urbanized and the most carbon-intensive economy in Sub Saharan Africa (SSA) region. Taking this into cognizance, this study examines the effects of urbanization and globalization on CO2 emissions for South Africa using time series annual data for the period 1980–2017. Zivot and Andrews single and Bai and Perron multiple structural break unit root tests are employed to assess if all the series are stationary. This procedure follows ARDL cointegration test to check the presence of a long-run association among variables. Having been confirmed about such a cointegrating relation, ARDL short-run and long run coefficients indicate that urbanization induces CO2 emissions while only long-run significant emissions effect of globalization was noted. Toda-Yamamoto non-causality test reports a bi-directional causal link between urbanization and CO2 emissions. No causal link is observed between globalization and CO2 emissions. Variance decomposition results do not rule out these effects in future. Policy implications are discussed.

Impact of International Remittance Inflows on Nigeria’s Trade Balance

AbstractWhile international remittance inflow is globally recognized as a key source of income for improved standard of living and poverty reduction, there is an ongoing intellectual debate that persistent remittance inflow causes deterioration in trade balances, by inducing import-led consumption expenditures, especially in developing countries like Nigeria. The study investigated the impact of international remittance inflows on Nigeria’s trade balances from 1990 to 2016. The study uses the contemporary econometric techniques of Zivot-Andrew (ZA) structural break unit root test, as well as the Gregory- Hansen cointegration test that allows for a single most significant unknown structural break in both the intercept and the entire coefficient vectors. The results show that remittance inflows to Nigeria have significant negative effect on trade balance, meaning that the Dutch disease effect of remittance inflows prevails in Nigeria. Based on this finding, the study recommends that the remittance inflows to Nigeria should follow the channel of private savings which, in turn, is released to productive domestic investment in order to expand the pool of manufactured products. This will definitely overcome the Dutch disease symptom being experienced in Nigeria.

Does Energy-Growth and Environment Quality Matter for Agriculture Sector in Pakistan or not? An Application of Cointegration Approach

The main objective of this paper is to examine the long-term effects of financial development, economic growth, energy consumption (electricity consumption in the agriculture sector), foreign direct investment (FDI), and population on the environmental quality in Pakistan during the period of 1980 to 2016. We use CO2 emissions from the agriculture sector as a proxy indicator for environmental quality. We employ various unit root tests (e.g., ADF, PP, ERS, KPSS) and structural break unit root tests (Z&A, CMR) to check the stationarity and structural break in the data series. Cointegration tests, i.e., Johansen, Engle-Granger, and ARDL cointegration approaches are used to ensure their robustness. Results showed that significant long-term cointegration exists among the variables. Findings also indicated that an increase in financial development and foreign direct investment (FDI) improves environmental quality, whereas the increase in economic growth and electricity consumption in the agriculture sector degrades environmental quality in Pakistan. Based on the findings, we suggest policymakers should provide a conducive environment for foreign investment. Moreover, it is also suggested that a reliance on fossil fuels be reduced and a transition to renewable energy sources be encouraged to decrease the environmental pollution in the country.

Macroeconomic Effects of Defense Expenditures in Turkey

In
 this study, the effects of defense expenditure on the macroeconomic majorities
 of Turkey such as economic growth, inflation, current account balance, import
 and employment have been investigated. 
 The relation in question has been analysed over the period between
 1980-2016 by structural breaks unit root test, causality tests of Toda-Yamamoto
 and Granger. As a result of this study, it has been detected that defense
 expenditures are effective on inflation, current account balance and import.
 Unlike previous studies which same tests were applied, causality from current
 account balance and GDP to defense expenditures was determined in this article.
 Evidence has shown that, for Turkish economy, defense expenditures are
 effective on macroeconomics variables.

Relative effectiveness of monetary and fiscal policies on output growth in Turkey: an ARDL bounds test approach

Research background: Effects of monetary and fiscal policy on output growth has been one of the major topics that economists have been investigating. Monetary and fiscal policies are tools for economists and policymakers to correctly direct the economy and facilitate the growth and development of the country. Accordingly, it is critically important for policy-makers in the area of economy to study the efficiency and the effectiveness of such policies. But, so far, there has been no generally accepted evidence suggesting the effectiveness of either the policy in Turkey or around the world. Instead, the dominance of either policy is subject to a change period to period and country to country.
 Purpose of the article: The purpose of this study is to analyze the growth effectiveness of fiscal and monetary policies and then determine which of these two policies is more powerful in promoting economic growth in Turkey over the period 1998 and 2016.
 Methods: To investigate the growth effectiveness of monetary and fiscal policies, we use some of the time series econometric techniques, such as ARDL Bounds testing, structural break unit root tests and Granger causality tests.
 Findings & Value added: Monetary policy variable is creating only short-run effects on growth; but, it?s not causing any Granger causality on it. On the other hand, fiscal policy variable has a long-run significant effect and causing to growth. Thus, the fiscal policy seems to be more effective than monetary policy during examination period, implying the rethinking the implementation of both policies in Turkey. To the best of our knowledge, this study is the first attempt to investigate the relative effectiveness of economic policies on growth in Turkey in terms of both methods used and period chosen.

Tourism and Economic Growth in Korea: Focusing on the Structural Break

This paper investigates the tourism-led growth hypothesis in the case of Korea considering a possible structural break from exogenous shocks, such as the Asian financial crisis in 1997 and the controlling policy of outbound travel in the latter half of the mid-1980s. To examine the possible structural break from exogenous shocks, we utilized a structural break unit root test. Adapting Granger causality test and variance decomposition, we found the relationship between tourism and economic growth in Korea. The results of the structural break test show that structural break points exist in 1979 and 1997 for tourism receipts and GDP, respectively. Before and after structural breaks points, we found a different relationship. We also found that a GDP shock only explained 22% of variation errors in tourism receipts based on the results of a variance decomposition. These results have contributions and implication to previous literature. First, the structural break from an exogenous shock can make a change in the relationship between tourism and economic growth. Second, a rise in GDP may lead to outbound tourism rather than domestic in Korea.

The Efficient Market Hypothesis Re-Visited: New Evidence from 100 US Firms

In this paper, we test the efficient market hypothesis for 100 US firms listed on the New York Stock Exchange. To test the unit root null hypothesis, we develop a generalized autoregressive heteroskedasticity (GARCH) model that not only caters for the GARCH errors but also allows for two endogenous structural breaks in the data series. We study the size and power properties of the proposed GARCH structural break unit root test and find that it statistically performs well in finite samples. We find that only 22% of firms have a stationary stock price series.

Linear and non-linear impact of Internet usage and financial deepening on electricity consumption for Turkey: empirical evidence from asymmetric causality.

This study investigates the relationship between Internet usage, financial development, economic growth, capital and electricity consumption using quarterly data from 1993Q1 to 2014Q4. The integration order of the series is analysed using the structural break unit root test. The ARDL bounds test for cointegration in addition to the Bayer-Hanck (2013) combined cointegration test is applied to analyse the existence of cointegration among the variables. The study found strong evidence of a long-run relationship between the variables. The long-run results under the ARDL framework confirm the existence of an inverted U-shaped relationship between financial development and electricity consumption, not only in the long-run, but also in the short-run. The study also confirms the existence of a U-shaped relationship between Internet usage and electricity consumption; however, the effect is insignificant. Additionally, the influence of trade, capital and economic growth is examined in both the long run and short run (ARDL-ECM). Finally, the results of asymmetric causality suggest a positive shock in electricity consumption that has a positive causal impact on Internet usage. The authors recommend that the Turkish Government should direct financial institutions to moderate the investment in the ICT sector by advancing credits at lower cost for purchasing energy-efficient technologies. In doing so, the Turkish Government can increase productivity in order to achieve sustainable growth, while simultaneously reducing emissions to improve environmental quality.

A Dynamic Relationship between Financial Development and Import Demand for Bangladesh: An Evidence from Combine Cointegration and Granger Causality Approach

This article has estimated the impact of financial development on import demand over the period of 1986: Q1–2014: Q4 in case of Bangladesh. The long-run relationship between financial development, import demand and economic growth are investigated by combine cointegration. Error Correction Method (ECM) is applied to examine short-run phenomena. The unit root properties of variables are tested by augmented Dickey–Fuller test (ADF) and Philips–Perron (P–P) unit root test. Perron (1997) single structural break unit root test is also applied. The results of Bayer and Hanck (2013) combine cointegration test that reveal the existence of long-run relationship between import demand, financial development and economic growth. Financial development and economic growth have a positive and significant impact on import demand in long run as well as in short run. The lagged value of error correction method (ECMt-1) is –0.08 that is negative and significant. This indicates that change from equilibrium level of import demand is corrected by 8 per cent per quarter in a year. The results of Vector Error Correction Model (VECM) Granger causality explain that bidirectional causality exists between import demand and financial development in long run as well as short run. Similarly, bidirectional causality exists between import demand and economic growth in short run. Policymakers should focus on financial sector development for import of technology through adoption of the import substitution policy.

An aggregate and disaggregate energy consumption, industrial growth and CO2 emission

PurposeThis study aims to examine the relationships between aggregated and disaggregated energy use in the industrial sector, carbon emissions and industrial output in China.Design/methodology/approachThe study utilizes annual frequency data for the period of 1984-2015. The unit root properties of data are tested using augmented Dickey–Fuller and Phillips and Perron unit root tests. Furthermore, the Zivot–Andrew structural breaks unit root test is used to detect the structural breaks steaming into series. The autoregressive distributed lag bound test and newly developed Bayer–Hanck combined cointegration are used to check the existence of a cointegration relationship between underlying variables. Last, the direction of causality is determined applying vector error correction model (VECM) Granger causality.FindingsThe results confirm the existence of a long-run relationship in the presence of structural breaks. The authors conclude that aggregated and disaggregated energy consumption in the industrial sector increases CO2 emission in both long and short run. The VECM Granger causality analysis indicates the bidirectional relationships between CO2 emission, industrial growth and aggregated and disaggregated (coal, oil and natural gas) energy consumption.Research limitations/implicationsBased on the empirical results mentioned above, the study proposes the recommendation that China should focus on the use of natural gas in the industrial sector instead of coal and oil consumption. The most potent reasons for such a transformation are twofold: natural gas is much more environment-friendly, thus being a much lesser polluting source of energy, and, most significantly, such a change would have no adverse impact upon the output level.Originality/valueThis study contributes to the existing literature on estimating CO2 emission by using aggregated and disaggregated energy consumption in case of China. Notwithstanding, it also adds to the existing applied literature by using newly developed combined cointegration to confirm and substantiate the cointegration relationship between the underlying variables. Moreover, this study incorporates the role of structural breaks while investigating CO2 emission function, which helps in providing more valuable policy suggestions.

Kurumsal Kalite ve Göçmen Gönderileri Arasındaki Asimetrik İlişki: Türkiye Üzerine Ampirik Bulgular

This study aims to examine the asymmetric causal relationship between the institutional quality index and remittance inflows in Turkey using the monthly data for the period between January 1985 and December 2014. To this end, the institutional quality index is formulated based on the eight different institutional quality indicators released by ICRG (International Country Risk Guide). Stationarity analyses of the variables are conducted with the LM two structural breaks unit root test developed by Lee and Strazicich (2003), while the existence of asymmetric causal relationship is examined with Hatemi-J (2012) asymmetric causality test. The findings obtained from the asymmetric causality test reveal that the improvement in the level of institutional quality does not affect remittance positively, whereas negative shocks in the level of institutional quality cause a negative shock in remittance inflows.

Energy production, economic growth and CO2 emission: evidence from Pakistan

An extensive body of knowledge is available on the relationship between energy consumption and CO2 emission incorporated by different variables. However, the role of energy production in the pollution equation is largely unknown. The present work quantifies the relationship between energy production, economic growth and CO2 emission. A family of econometric tools is used to achieve the objective of the study. Due to the sensitivity of objective of the present work, we use structural break unit root test to measure the stability of parameters within the time span of 1970–2011. Johansen cointegration test confirms the existence of cointegration among variables. Autoregressive distributive lag model reveals that energy production from the fossil fuel is the main culprit behind growing CO2 emission. Additionally, the finding of the study claims the existence of environmental Kuznets curve hypothesis in the significance of energy production in Pakistan. Moreover, bidirectional causality is detected between energy production and carbon dioxide emission in the long-run path. It is suggested that pollution can be condensed by producing energy from the renewable source (hydropower, solar power, geothermal and wind energy) and add more renewable energy to the energy mix.