A confirmatory analysis of the unit root hypothesis for OECD consumption-income ratios

This article investigates the existence of a unit root in the consumption-income ratio for a sample of 23 OECD countries over the period 1960 to 2005. For that purpose, we first use recently developed unit root tests with good size and power. Second, we employ the more powerful panel unit root tests of Pesaran (2003 Pesaran, MH. 2003. A Simple Panel Unit Root Test in the Presence of Cross-Section Dependence mimeo, Cambridge University [Google Scholar]) and Smith et al . (2004) that take the null of nonstationarity and a bootstrap version of the test of Hadri (2000 Hadri, K. 2000. Testing for stationarity in heterogeneous panel data. The Econometrics Journal, 3: 148–61. [Crossref] , [Google Scholar]) that takes stationarity as the null hypothesis. Overall, our confirmatory analysis renders clear-cut evidence that OECD consumption-income ratios contain a unit root.