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This study aims to show the consequences of a restrictive homogeneity assumption of frequency in heterogeneous panel unit root and cointegration testing with Flexible Fourier Form. For this purpose, we use a simple panel unit root and residual based cointegration test with Flexible Fourier Form in a heterogeneous frequency setting using a bootstrap algorithm. The power of the test statistics and empirical analysis results indicate that failing to take into account a heterogeneous frequency may lead to misleading inferences, thereby leading to misspecified tests and erroneous conclusions concerning the stochastic behavior of the data in the panel sample. [ABSTRACT FROM AUTHOR]

We investigate the hysteresis hypothesis by proposing a heterogeneous panel unit root test that allows for gradually changing trends and cross-sectional dependence (CSD) among panel members using a flexible Fourier form. Inconclusive results from previous studies are potentially due to using very restrictive specifications with homogenous break structures and/or exogenously determined abrupt breaks. We seek to address these limitations by employing general specifications that are more capable of characterising the true data generation process of unemployment and by allowing for spill-over effects using a bootstrapping procedure to accommodate CSD that must be considered in a globalized world. Extensive simulations suggest that the failure to take structural breaks and CSD into account can lead to misleading conclusions about whether the unemployment rate is stationarity. We apply our test procedure to unemployment data for 23 OECD countries and find conclusive evidence against the hysteresis hypothesis for all these countries. [ABSTRACT FROM AUTHOR]

We investigate the impact of an uncertain number of false individual null hypotheses on commonly used p value combination methods. Under such uncertainty, these methods perform quite differently and often yield conflicting results. Consequently, we develop a combination of 'combinations of p values' (CCP) test aimed at maintaining good power properties across such uncertainty. The CCP test is based on a simple union-intersection principle that exploits the weak correspondence between two underlying p value combination methods. Monte Carlo simulations show that the CCP test controls size and closely tracks the power of the best individual methods. We empirically apply the CCP test to explore the stationarity in real exchange rates and the information rigidity in inflation and output growth forecasts. [ABSTRACT FROM AUTHOR]

The article discusses a study that examined the stochastic behavior of real interest rates as to the presence of nolinear, cross sectional or structural breaks. Topics include econometric analysis using the consumption-based asset pricing models (CAPM) and the real interest rate parity hypothesis (RIPH) on reverting dynamics of variables. Results showed reversion of interest rates as to real interest rates in Organisation for Economic Co-operation and Development (OECD) member-countries.

A number of studies have estimated the income elasticity of health care expenditure to identify whether health care is a necessary or luxury product. However, the issue has received less attention in developing countries, especially in Asian economies. The current study for the first time has used the panel data covering 36 Asian countries for the period 1995-2013 for revealing the nature of health care as a product. Along with conventional econometric techniques we have addressed the issue of cross section dependence and used Westerlund (2007) panel cointegration test which is robust against cross section dependence and heterogeneity for detecting the presence of panel cointegration. By applying Fully Modified OLS (FMOLS) and Dynamic OLS (DOLS) it was found that the long run elasticity of Health Care Expenditure (HCE) with Gross Domestic Product (GDP) is less than unit implying that the health care can be regarded as necessary in nature for these countries. [ABSTRACT FROM AUTHOR]

We assess the sustainability of public finances in the EU-15 over the period 1970–2006 using stationarity and cointegration analysis. Specifically, we use panel unit root tests of the first and second generation allowing in some cases for structural breaks. We also apply modern panel cointegration techniques developed by Pedroni (Oxf Bull Econ Stat 61(1):653–670, ; Econom Theory 20(3):597–625, ), generalized by Banerjee and Carrion-i-Silvestre (Cointegration in panel data with breaks and cross-section dependence, European Central Bank, Working Paper 591, and Westerlund and Edgerton (Econ Lett 97(3):185–190, , to a structural long-run equation between general government expenditures and revenues. While estimations point to fiscal sustainability being an issue in some countries, fiscal policy was sustainable both for the EU-15 panel set, and within sub-periods (1970–1991 and 1992–2006). [ABSTRACT FROM AUTHOR]

The aim of the present paper is to provide cross country evidence of the non-stationarity of hours worked for OECD countries. For this purpose, panel unit root tests are employed to improve power against univariate counterparts. Since cross section correlation is a distinct feature of the underlying panel data, results are based on various second generation panel unit root tests, which account for cross section dependence among units. If an unobserved common factor model is assumed for generating the observations, there is indication for both a common factor and idiosyncratic components driving the non-stationarity of hours worked. In addition, taking these results together, there is no indication of cointegration among the individual time series of hours worked. [ABSTRACT FROM AUTHOR]

In this paper, the recently developed panel unit root and the Pedroni cointegration tests are applied to empirically examine the validity of the Feldstein–Horioka puzzle (F–H puzzle) for a heterogeneous panel of 14 Latin American and five Caribbean countries over the period, 1960–2002. The findings indicate that in these countries, the long-run solvency condition is maintained. Finally, employing the Pedroni panel group FM-OLS estimator (2000, 2001), it is found that the statistically significant estimated savings-retention coefficient for the panel is relatively small indicating that the F–H Puzzle is not valid and thus implying the prevalence of a moderate degree of capital mobility. [ABSTRACT FROM AUTHOR]

The stationarity of inflation has many important economic implications. Most panel-based empirical studies do not handle cross-sectional dependence, which will result in power distortion. This paper applies a nonlinear IV estimator to calculate the test statistic of panel unit root (Chang in J Econom 110:261–292, 2002), which accounts for general cross-sectional correlation. Using monthly inflation rates, two statistics proposed by Im et al. (J Econom 115:53–74, 2003) reject the unit root; however, the nonlinear IV statistic accepts the unit root. That is, the ignored cross-sectional correlation may lead to over-rejection of the unit root null. In a nutshell, unlike current literature, the inflation rates may accelerate after all. [ABSTRACT FROM AUTHOR]

This study investigates the time series behavior of real estate company net asset value discount/premium (NAVDISC) in eight Asian-Pacific securitized real estate markets from 1995 to 2003. We postulate that if there is a stable NAVDISC for real estate companies in the long-run, then there should be a long-run cointegrating relation between their stock prices (Ps) and net asset values (NAVs). Employing panel data cointegration econometrics that comprises three approaches; panel unit root test, heterogeneous panel cointegration test and dynamic panel error-correction modeling (ECM), we find that long run NAVDISCs persist in individual Asian-Pacific securitized real estate markets and the regional market. All the NAVDISCs exhibit mean reversion and that the respective disequilibrium errors fluctuate around the mean values. Moreover, NAV is an important factor that statistically explains the price variations in real estate stock prices regardless of their speed of mean-reversion in the NAV discount /premium. [ABSTRACT FROM AUTHOR]