Nonlinearity and stationarity of inflation rates: evidence from the euro-zone countries

Earlier studies hardly reject the hypothesis of a unit root in inflation. Few studies have examined the possibility of nonlinearity in inflation and tested nonlinear stationarity of the inflation rates. This study thus intends to fill the gap. This study utilizes the tests for nonlinearity along with the unit root tests that allow for nonlinearity in the variables to examine the stationarity of inflation rates of 12 European countries that formed the Euro Zone (EZ) later in the sample period. The results suggest that the majority of these countries’ inflation rates can be characterized by mean reversion during the floating exchange rate period. Many of them appear to be nonlinear stationary. This finding is essential in conducting applied economic studies for these countries, when constructing models whose validity relies on whether or not inflation is stationary. The results of this study also imply that shocks to inflation have a transitory effect on inflation in the euro area. Therefore, it would be less costly in exercising the policies of disinflation for the monetary authorities of the euro area than for those of the countries with nonstationary inflation.     

Dynamics of Urban Residential Property Prices— A Case Study of the Manhattan Market

In a multivariate vector autoregression framework, this paper investigates the weak efficiency of the urban residential real estate market and the cause of weak efficiency. An error correction model is used to estimate long-term relationships among apartment prices and adjustment speed from disequilibrium to equilibrium. Based on a unique dataset of the Manhattan market, the efficiency of this market, seasonal stationarity of property prices, and the weak exogeneity of leading sub-markets are studied. Our results indicate that, in a market of less heterogeneity and higher transaction volumes, the weak efficiency hypothesis is rejected as in previous studies. This result implies that heterogeneity and lack of transaction information may not be the direct source of market inefficiency. Meanwhile, it is found that there are stable long-term relations among prices of different sub-markets. Interestingly, the price of one-bedroom co-operatives (co-op) is weakly exogenous. This implies that the starting co-op for most home buyers in urban areas is a leading indicator of the entire market, which contradicts the claim that high-end luxury co-op leads the market.     

Cointegration Analysis of Audit Pricing Model: A Panel Unit Root Test Approach

In this study, we provide evidence on the stationarity of real audit fees and the major explanatory variables frequently used in the audit pricing models from a pooled data set, using panel unit root tests developed by Im et al. (1997). The panel unit root test supports the hypothesis of non‐stationarity of audit fees and their major determinants. We demonstrate that variables in the audit pricing model that were previously found to have impact on audit fees may turn out to be useless when more powerful tests like panel tests are applied to these variables. Our evidence implies that failing to employ appropriate procedure to test cointegration and to specify the appropriate model for audit fees and their determinants would generate results that may have exaggerated the effects of some variables on audit fees.     

TESTING FOR STATIONARITY WITH A BREAK IN PANELS WHERE THE TIME DIMENSION IS FINITE

In this paper, we consider the case of finite time dimension in the panel stationarity tests with structural breaks. By fixing T, the finite sample properties of the tests for both micro (T small and N large) and macro (both T and N large) panel data are generally greatly improved. More importantly, the derivation of the tests for finite T and , as opposed to joint asymptotic where N and simultaneously, avoids the imposition of the rate condition making the test valid for any (T, N) blend. Four models corresponding to the usual combination of breaks are considered. The asymptotic distributions of the test are derived under the null hypothesis and are shown to be normally distributed. Their moments for T fixed are derived analytically employing Ghazal’s corollary 1. The case with unknown breaks is also considered. The proposed tests have generally empirical sizes that are very close to the nominal size. The Monte Carlo simulations show that the power of the test statistics increases substantially with N and T.     

The competitive and anticompetitive aheories of advertising: an empirical analysis

Pairs trading is a popular dollar-neutral trading strategy. This article, using the components of the S&P 500 index, explores the performance of a pairs trading system based on various pairs selection methods. Whereas large empirical applications in the literature focus on the distance method, this article also deals with well-known statistical and econometric techniques such as stationarity and cointegration which make the trading system much more demanding from a computational point of view. Trades are initiated when stocks deviate from their equilibrium. Our results confirm, after controlling for risk and transaction costs, that the distance method generates insignificant excess returns. While a pairs selection following the stationarity criterion leads to a weak performance, this article reveals that cointegration provides a high, stable and robust return.     

Is Asian per capita GDP panel stationary?

The goal of this paper is to examine whether per capita GDP for 15 Asian countries is panel stationary. We apply a panel test for stationarity that allows for multiple structural breaks developed by Carrion-i-Silvestre et al. (Econ J 8: 159–179, 2005). Our main findings are: (1) when we apply conventional tests, such as the ADF and KPSS univariate tests without structural breaks, we find little evidence for stationarity; (2) when we apply the KPSS univariate test with multiple structural breaks, we find evidence of stationarity for 10 out of 15 countries; and (3) when we apply the KPSS panel test with multiple structural breaks, we find overwhelming evidence of panel stationarity of per capita real GDP for different panels of Asian countries.      

Re-examining the Fisher Effect: An Application of Small Sample Distributions of the Covariate Unit Root Test

Abstract

This article employs the covariate unit root test proposed by Elliott and Jansson to investigate the stationarity properties of real interest rates. Instead of blindly trusting the asymptotic distribution of the test, we extend Rudebusch's method to estimate its finite sample distributions under the null and alternative hypotheses. With these distributions, we can obtain the probabilities that the test statistic comes from the null and alternative hypotheses, and quantify the asymptotic size as well as the test power for each specific series. Our simulation experiments show that first, due to the higher power raised by the inclusion of covariates, the test can overwhelmingly reject the unit root null for the 16 industrialized countries; secondly, the Ng and Perron tests deliver lower powers in most countries, and thus lead to the false conclusion of non-stationary real interest rates. Finally, allowing for multiple endogenous breaks in the real interest rates provides only stationary evidence in half of the 16 countries.     

Central Bank Independence and Sacrifice Ratios: Some Further Considerations

The existing literature reports a positive relationship between sacrifice ratios and central bank independence. This paper discusses two critical points related to the usual procedures employed by this literature. One concerns the issue of non-stationarity of the inflation rate, the other the problem of correlation between the error terms for different disinflation episodes in the same country. The way in which the sacrifice ratio-central bank independence relationship is tested is reconsidered taking into account these points. Our results shed considerable doubts on the nature and robustness of such a relationship and on the usual interpretation given to it in the literature.