Traditional Unit Root Tests Research Articles

Sustainability of the Current Account in Developing Countries: A Fourier Wavelet-Based Unit Root Test

The sustainability of the current account balance for five fragile economies—Brazil, Argentina, South Africa, India, and Türkiye (namely, BASIT)—is investigated. These countries’ economies operate under a time current account deficit almost all the time, a condition that causes fragility to external shocks; the following fallout from these shocks may risk not only the domestic economy but also the international economy, such as by clogging trade and income distribution. In this study, the sustainability of the current account in BASIT countries is examined via wavelet-based Kapetanios, Shin and Snell (WKSS) and Fourier wavelet-based KSS (FWKSS) unit root tests, in conjunction with linear unit root tests. Even though traditional unit root tests generally support the sustainability of a current account deficit for all countries, a non-linear unit roots test confirms the traditional tests for only India and South Africa. Results from the wavelet transform of non-linear unit root tests indicate the unsustainability of the current account balance, except in the case Türkiye. Moreover, the FWKSS test confirms WKSS.

Relationship Between Twitter Sentiment Analysis and Bitcoin Prices: Econometric Analysis of Long and Short Term Dynamics

The significance of social media in influencing cryptocurrency pricing has grown considerably in recent years. This study aims to explore the correlations between social media sentiments and Bitcoin pricing, both in the short and long terms, while also investigating the direction of these relationships. Sentiment analysis was conducted using the TextBlob model, which uncovers the underlying meaning in text through analysis. The study tested the hypothesis that there exists a relationship between sentiment analysis scores and Bitcoin prices over both short and long periods. Ensuring stationarity was crucial for time series analysis, involving the use of structural break and traditional unit root tests. Daily data from June 2021 to June 2022 was examined, with December 2021 serving as the focal point due to a peak in Bitcoin prices. The study focused on Bitcoin price data and sentiment analysis scores. Results revealed Twitter data as the dependent variable, showing no long-term relationship with Bitcoin prices. However, a significant and positive relationship was observed in the short term. This research contributes valuable insights into the intricate dynamics between social media sentiments and cryptocurrency pricing.

Is ‘Common Prosperity’ Badly Needed in Mainland China? Evidence on the Variance Convergence of Per-Capita GDP among 31 Cities and Provinces

ABSTRACT This research paper examines the necessity of implementing “common prosperity” in mainland China, as emphasized by Xi Jinping during the 20th Congress of CCP on October 16, 2022. The issue of provincial income divergence remains a challenge to China’s sustainable growth. The new concept of “common prosperity” stresses the requirement of reducing income inequality for the balance of growth and stability in the next development phase of China. This study analyzes regional income inequality and convergence using the club convergence approach. This method offers more precise indications of economic symmetry than traditional unit root tests, enabling clearer policy implications. The empirical analysis reveals that while full cross-provincial variance convergence is unsustainable, the 31 cities and provinces can be grouped based on club variance convergence of the per capita GDP. The past and current public policies could have an impact on the imbalanced convergence, such as “the richer got more” from the fiscal transfers, the hukou system, and the educational and tax justice among cities and provinces.

REVISITING PURCHASING POWER PARITY IN EMERGING-7 COUNTRIES: A POWERFUL UNIT ROOT TEST

This paper introduces a newly developed unit root test procedure named the Fourier Quantile AESTAR (FAESTAR-QKS) test that allows nonlinearity and structural changes. The FAESTAR-QKS unit root test is mainly based on the quantile approach and provides more powerful results since it is robust toward non-normal errors. Then, we test the Purchasing Power Parity hypothesis (PPP) [or the mean-reverting properties of real exchange rates] in emerging seven (E7) countries (Brazil, China, India, Indonesia, Mexico, Russia, and Turkey) from 1995:1 to 2023:6 by using a novel FAESTAR-QKS test procedure. The results show that the FAESTAR-QKS unit root test provides more evidence on the validity of PPP than the traditional unit root test. Accordingly, the PPP hypothesis is valid in all E7 countries except for Turkey in the long run.

Does the Linkage between GDP, Renewable Energy, and Methane Validate the EKC hypothesis? Evidence from Indonesia

Is it feasible for Indonesia to sustain economic growth while simultaneously reducing methane emissions? This paper aims to unravel the Environmental Kuznets Curve (EKC) hypothesis for methane by integrating the role of renewable energy by employing annual data for the period 1990-2020. Autoregressive distributed lag (ARDL)-bounds testing is applied to estimate the dynamic and cointegration relationships. Also, this paper performs both traditional and breakpoint unit root tests. The EKC hypothesis is confirmed since there is an inverse U-curve nexus between GDP and methane per capita. The income turning point is 14,516 USD per capita. Indonesia’s income level is still below its estimated EKC threshold, implying that economic growth forces methane emissions to scale up. A 1% increase in GDP per capita leads to a 4.59% increase in methane per capita. However, renewable energy has a beneficial role in tackling methane emissions. A 1% increase in the share of renewable energy use leads to a 0.36% decrease in methane per capita. It is therefore recommended that to mitigate the damaging impact of economic growth, governments should enhance the share of energy use from renewable sources.

The INVESTIGATION OF ASYMMETRIC DYNAMICS OF BORSA ISTANBUL INDEX WITH QUANTILE UNIT ROOT TEST

In this study, we apply the quantile unit root test, which provides robust inferences for non-normal processes based on the quantile autoregression approach, to examine the asymmetric dynamic process of the BIST100 Borsa Istanbul index. The quantile autoregression approach allows the measurement of the persistency of shocks of different magnitudes and signs affecting the stock market index and can capture the adjustment of asymmetric dynamics in the long-run equilibrium of the index. Therefore, quantile unit root tests add new approaches to index dynamics compared to traditional unit root methodologies based on the least squares regression method. Our results show that the index not only returns to the mean but also exhibits asymmetric behavior in its dynamic structure. Compared to traditional unit root tests, quantile unit root tests provide more evidence to support the efficiency of the stock market index and show that the stock market index at different frequencies does not consistently have a unit root. Asymmetric inferences in shock magnitude and sign play an important role in asset pricing and forecasting in the securities market.

Kırılgan Piyasa Ekonomileri Arasında Döviz Kurları Yakınsıyor mu? LM ve RALS-LM Birim Kök Testlerinden Yeni Kanıtlar

Global financial integration causes the economic consequences of economic crises, wars, or pandemics to be felt more in developing countries and triggers high exchange rate volatilities in these economies. In such an integrated financial environment, it is an interesting research domain how and why the exchange rate volatilities of countries are not affected similarly but tend to diverge from each other. This study investigates whether the exchange rate volatilities of fragile market economies converge in the stochastic convergence framework. To answer this question, we analyzed the stochastic behavior of the series using the traditional and structural break unit root tests besides RALS unit root tests, which consider the information of non-normal errors. The discussions regarding the size and power properties of test procedures in the unit root testing literature have formed a crucial part of the implications of the test results. In light of these discussions, we conclude that the stochastic convergence assumption is valid for Brazil, South Africa, India, and Hungary, whereas it is not valid for Argentina, Mexico, and Türkiye. The policy implications of our findings are that fragile market economies have different fragility levels among themselves and countries with high fragility levels show higher volatility than others.

An Econometric Study on the Validity of the Unemployment Hysteresis Hypothesis in EU-15 and EU-28

Unemployment is among the main economic problems not only for developed countries but also for underdeveloped countries. The European Union, which was mostly composed of developed Western European countries until 2004, has grown with the participation of Eastern European countries in the following years. In its current form, the European Union consists of countries with different levels of development. The European Union should undoubtedly consider this structure of the union in the economic policies it develops. The existence of unemployment hysteresis, which shows the situation in which unemployment, which increased after an economic shock, does not return to its former levels, is important for policymakers of the union countries, especially in terms of methods of combating unemployment. This study aims to examine unemployment hysteresis for the EU-15 and EU-28 over the average values in the 2001Q1-2019Q4 period. In addition to the traditional unit root tests of Augmented Dickey Fuller (ADF) and Phillips Perron (PP), the Fractional Frequency Fourier ADF Unit Root Test developed by Bozoklu et al. (2020) has been used as the methodology. The data are obtained from Eurostat, the official website of the European Union where statistics are published. As a result of the study, evidence is found that the hysteresis hypothesis is valid in EU-15 and EU-28 according to all three analyzes used. In the study, the use of the Fractional Frequency Fourier ADF Unit Root Test, which is the most up-to-date test, contributes to the literature.

Assessing the stochastic behavior of fishing grounds footprint of top ten fishing countries

Life on the ocean floor needs a long time to reproduce and thrive. If consumption habits continue as they are, it is likely that more than one world’s resources will be needed in the near future to meet the needs of a growing population. The fishing grounds footprint (FGF) is an important environmental indicator because it reflects the water area required for marine products produced. Moreover, reformative policies and urgent actions related to the FGF have been one of the leading priorities of governments to protect biodiversity, provide sustainability of fisheries and diminish water pollution. Therefore, this study employed the FGF per capita of the 10 countries producing and catching the most fish. Accordingly, the stochastic behaviors of the FGF of these countries were examined using three areas involving the traditional unit root test (ADF, KPSS, and PP), the residual augmented ADF unit root tests (RALS-ADF), and the Fourier unit root tests (FKPSS, FADF, and FFFFF-DF). The results will be an important resource for policymakers to develop inclusive strategies and policies for marine animals and ecological life.

Impact of major global events on the Turkish stock market efficiency

Market efficiency is of great importance to many investors, policy makers, as well as researchers. It provides them with information regarding the market and acts as a guide in their decision-making process. For this reason, there have been extensive amount of research done through the years. However, the World has witnessed several major events in the last couple of decades, which has been of great importance for financial markets, having both direct and indirect impacts. The Global Financial Crisis of 2008 and the COVID-19 pandemic can be the two most important events the World has experienced. Although past research shows that the impact of both events on the efficiency of the stock markets were looked at in separate studies, there is lack of studies involving both major events and analysing how the efficiency of the stock market is changing between these periods. The aim of this study is to analyse the weak-form efficiency of the Turkish stock market and how it has evolved over time. There are 4 different data sets used to observe the changes in market efficiency, with full sample ranging from February 1988 to September 2022. Monthly closing prices of the BIST100 Index are analysed using both the traditional linear Augmented Dickey-Fuller unit root test and 5 different non-linear unit root tests. Results show that different tests have different strengths in capturing the stationarity and due to the LNV test Turkish Stock Market was found not to be weak form efficient.

Persistence of shocks on sectoral non-methane volatile organic compound from 1820 to 2019: Insights from a fourier quantile unit root test

Despite being directly related to anthropogenic consumption and production, researchers have paid less attention to understanding the dynamics of non-methane volatile organic compounds. The primary objective of this research is to investigate the persistence of potential shocks to non-methane volatile organic compounds in 20 developed from 1820 to 2019 performing traditional unit root approaches and a newly developed Fourier quantile unit root test. Great portion of the empirical results obtained by traditional unit root tests reveal that the sectoral non-methane volatile organic compounds follow a non-stationary process, while the Fourier quantile unit root test indicate quite different results. The Fourier quantile test shows that non-methane volatile organic compounds are stationary in the United Kingdom, Ireland, Germany, France and Austria. In the other 15 countries, government interventions to reduce non-methane volatile organic compounds can have lasting effects and success. The inferences and policy outcomes of the empirical results are discussed in the main body of the paper.

The Effect of R&D Expenditures and Number of Patents on Employment in Turkiye: An Evaluation with the ARDL Analysis

Unemployment is one of the important macroeconomic problems all over the world. As a matter of fact, employment is one of the most important targets in macroeconomics. For this reason, countries implement various policies in line with the goal of reaching the employment level closest to full employment. The diversity of the instruments preferred while the said policies are being implemented and the content of the investments made in reaching the target are extremely important. Recently, investments in research and development (R&D) expenditures have been increasing rapidly in all countries. At the same time, the total number of patents in countries tends to increase. The aforementioned increases, which are considered as the key to technological development, reveal positive economic statements. In this context, this study examines the relationship between R&D expenditures and total number of patents and employment. In this study, in which 2000-2020 annual data for Turkey are used, whether the series are stationary or not has been determined by traditional unit root tests. After the stationarity determination of the series, the autoregressive distributed lag model ARDL test was performed. According to the results of the analysis, it has been determined that there is a cointegration effect between the variables of R&D expenditures and number of patents and employment variable in Turkey. According to the results of the analysis, it has been determined that a 1% increase in R&D expenditures reduces employment rates by 0.72%, while a 1% unit increase in the total number of patents increases employment rates by 0.04%.

THE PURCHASING POWER PARITY HYPOTHESIS TESTED -ONCE AGAIN-. NEW EMPIRICAL EVIDENCE FOR 28 OECD COUNTRIES

The present study is aimed to examine the validity of the purchasing power parity hypothesis for 28 OECD countries over the 1960q1-2021q4 period. To reach this goal, we apply three methods to evaluate whether the real exchange rates are stationary: the traditional unit root tests in time series, the panel unit root tests, and nonlinear unit root tests based on OLS and GLS detrending. The findings suggest that the purchasing power parity hypothesis does not hold even if the assessment considers nonlinear adjustment.

ASYMMETRIC IMPACTS AMONG OIL PRICE SHOCKS, GOVERNMENT EXPENDITURES, MONETARY RESERVES, EXCHANGE RATE IN KSA: EVIDENCE FROM A NON-LINEAR ARDL APPROACH

This study examines the influence of oil price shocks on government expenditures; monetary reserves; exchange rate in KSA 1970-2020. For this purpose, we employed a non-linear autoregressive distributed lag NARDL approach to disentangle the effects of positive, and negative shocks; identify the existence of structural factors and we employed the traditional unit root tests and the unit root tests with structural breaks to verify stationery. Through the application of the NARDL model, we confirm the presence of co-integration between oil price shocks; government expenditures, monetary reserves, and exchange rate in KSA. The results show that the asymmetry hypothesis is valid for the long run and short run which suggests that the oil price shocks are sensitive to the variation in the macroeconomic indicators. This means that these macroeconomic indicators play an important role in oil price shocks. And how to absorb these shocks in the long run. The findings of this study suggest that in the short run, the oil price is negatively influenced by the Monetary Reserves, and positively by the exchange rate; government expenditures. Results support the nonlinear proposition wherein positive shocks are compared to negative shocks. Complementary macroeconomic policy guidelines; the policy of rationalization of spending and the stability of the exchange rate in KSA can help to reinstate transform their economies away from oil dependence. And this would facilitate in dealing with the shocks that may face oil prices in the future. Accordingly; policy makers must pay attention to the Economic; geopolitical and epidemiological developments in light of unexpected variables.

Determining the Relationships Between Domestic Credits, Economic Growth and Inflation in Turkiye by Nonlinear Cointegration Analysis

The aim of this study is to determine the relationship between GDP and inflation and domestic
 loans given by banks to the private sector by using time series models. In this study, in which the
 1972-2020 annual data for Turkiye were used, Harvey et al. (2008) Harvey and Leybourne (2007)
 linearity tests, traditional unit root tests for linearly determined series and Kapetanios, Shin and Snell
 (2003) (KSS) unit root tests for nonlinear series were performed. After the series were determined to
 be stationary, Kapetanios, Shin and Snell (KSS) (2006) cointegration test was performed. According to
 the results of the analysis, no cointegrated relationship was found between the GDP and inflation and
 domestic loans given by banks to the private sector in Turkiye. As a result, it can be said that there is
 no pass-through effect on GDP and inflation rates as a result of the increase/decrease in loans given
 by banks to the private sector in Turkiye.

Exploring the Relationship between Energy Consumption and Economic Growth in Lower Middle and High Income Economies using Panel data Techniques

In this paper, the panel relationship between energy consumption (ECP) and economic growth (GDP), is investigated for the thirty-one countries from 1971 to 2014. These countries are divided into two panels based on lower-middle-income and high-income-level economies. Traditional ADF unit root test is used to confirm the stationarity at first difference. Also, four panel unit root tests, namely LLC (2000), IPS (1997, 2003), Fisher (1999), and Hadri (2000) tests confirmed the stationarity of variables for both panels at first difference. Furthermore, the long-run relationship between ECP and GDP is explored by four advanced panel cointegration techniques, i.e., Kao (1999), Pedroni (1999, 2004), Fisher (1999), and Westerlund (2007). Moreover, the pairwise panel causality test is used to identify the Granger causality between ECP and GDP. Lastly, the dynamic OLS (DOLS) estimator of Saikkonen (1991) and the fully modified OLS (FMOLS) estimator of Phillips and Hansen (1990) is used to estimate the parameters of the cointegration relationship. According to the empirical results, ECP and GDP are cointegrated for both panels. Long-run Granger causality running from GDP to ECP for both income level economies is also revealed. The energy conservation policies can play a vital role in boosting economic growth, especially for lower-middle-income economies.

Wavelet and Fourier augmented convergence analysis of methane emissions in more than two centuries: implications for environmental management in OECD countries.

Addressing the challenges posed by pollutants is necessary to achieve Sustainable Development Goal 13, which involves climate change mitigation and enhancement of environmental quality. The convergence analysis of a pollutant provides information that can be useful to how to handle that pollutant across countries or regions, and previous studies mainly focused on carbon emission. However, the second most significant greenhouse gas, methane emission, was mostly ignored. The primary objective of this research is to investigate whether stochastic convergence of methane emissions is valid in 37 OECD (Organisation for Economic Co-operation and Development) countries using a dataset of more than two centuries. The results obtained by using a set of traditional unit root tests and a newly proposed wavelet unit root test with a Fourier function provide overwhelming evidence for these countries' divergence of methane emissions. The policy implications resulting from the empirical findings for environmental management are discussed in the relevant sections of the paper.

Fourier DF unit root test for R&D intensity of G7 countries

ABSTRACT According to the Schumpeterian endogenous growth theory, the efficacy of R&D is lowered by the proliferation of products. To be consistent with empirical data, the ratio between innovative activity and product variety (also called R&D intensity) must be stationary. From this perspective, our contribution investigates whether the R&D intensity series is stationary when structural breaks are considered. Our sample of G7 countries is examined over the period spanning from 1870 to 2016. Our results indicate that traditional unit root tests (ADF, DF-GLS and KPSS) conclude that the R&D intensity series are non-stationary, in contradiction with the Schumpeterian endogenous growth theory. The conclusions of these traditional unit root tests may be misleading, as they ignore the presence of structural breaks. Indeed, we use several types of Fourier Dickey-Fuller tests to consider the presence of structural breaks. In the Fourier Dickey-Fuller unit root tests using double frequency and fractional frequency, the R&D intensity is significantly stationary at least at the 5% level for Canada, France, Germany, Italy and Japan when a deterministic trend is included in the tests. Nevertheless, the R&D intensity is non-stationary for the US, even when we consider structural breaks.

Influence of Structural Break on the Power of ADF Unit Root Test

With the changes in economic structure and social development, the paths of most economic variables show the characteristics of structural changes. Traditional unit root tests, such as ADF and PP tests, often lead to wrong conclusions about data stationarity characteristics when considering such structural variation factors. This paper considers the test power of ADF statistic with one structural break using Monte Carlo simulation when the data generating process has double breaks in both intercept and slope. The results show that when there is a structural break in the data generating process if the conventional unit root test is performing without considering this break, the ADF test is still efficient when the degree of the structural break is relatively low. Furthermore, this paper discusses the influence of the size of the sample, break position and break degree on the power of the ADF statistic test under the premise of a low break degree.

Does overseas eco‐friendly innovation collaboration matter for environmental quality sustainability in India?

AbstractThe nexus between technological innovations and environmental quality has been much discussed in the field of energy economics and policy. However, the role of overseas eco‐friendly innovation collaboration on environmental quality in India remains unaddressed. In such a line, our study raises the question of whether overseas eco‐friendly innovation collaboration and total technological innovations collaboration are important towards health protection of the natural environment in India. This motivates us to study their effects on India’s carbon dioxide emissions function in the presence of energy consumption and economic growth as important control variables. The usage of annual data from 1985 to 2016 permits us to use traditional and structural break unit root tests before the application of ARDL model to evaluate the long‐run relationship between the variables. Besides confirming the long‐run relationship among the variables, we find that eco‐friendly innovation and total innovation collaborations drive health of the natural environment while energy consumption impedes it. The adverse effect of economic growth on environmental quality becomes ineffective. These findings are robust to the usage of alternative techniques, urging climate policymakers in India to house greater overseas eco‐friendly innovation collaboration with other advanced and emerging economies to drive environmental quality sustainability in the long run.