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

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  • Steven Cook

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.

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  • Steven Cook, 2003. "The nonstationarity of the consumption-income ratio: Evidence from more powerful Dickey-Fuller tests," Applied Economics Letters, Taylor & Francis Journals, vol. 10(7), pages 393-395.
    • Handle: RePEc:taf:apeclt:v:10:y:2003:i:7:p:393-395
    DOI: 10.1080/1350485032000081974
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    Cited by:

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    2. Sakiru Adebola Solarin & Muhammad Shahbaz & Chris Stewart, 2018. "Is the consumption-income ratio stationary in African countries? Evidence from new time series tests that allow for structural breaks," Applied Economics, Taylor & Francis Journals, vol. 50(38), pages 4122-4136, August.
    3. Diego Romero-Avila, 2008. "A confirmatory analysis of the unit root hypothesis for OECD consumption-income ratios," Applied Economics, Taylor & Francis Journals, vol. 40(17), pages 2271-2278.
    4. Shu‐Yi Liao & Lan‐Hsun Wang & Mao‐Lung Huang, 2019. "Does More Consumption Promote Real GDP Growth?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 66(3), pages 384-403, July.

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