The nonstationarity of the consumption-income ratio: Evidence from more powerful Dickey-Fuller tests

Steven Cook

Applied Economics Letters, 2003, vol. 10, issue 7, 393-395

Abstract: In this letter the question of whether the consumption-income ratio is mean reverting is revisited. To address known problems of low power associated with previous studies, more powerful modifications of the Dickey-Fuller (DF) test are applied. The results of weighted symmetric and recursively mean-adjusted DF tests provide strong evidence of the UK consumption-income ratio being nonstationary. This finding is further supported by reduced bias estimation of the autoregressive parameter, the estimated value of ρ derived being much closer to unity than that obtained under a conventional DF test.

Date: 2003
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DOI: 10.1080/1350485032000081974

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