It is widely agreed in empirical studies that allowing for potential structural change in economic processes is an important issue. In existing literature, tests for cointegration between time series ...data allow for one regime shift. This paper extends three residual-based test statistics for cointegration to the cases that take into account two possible regime shifts. The timing of each shift is unknown a priori and it is determined endogenously. The distributions of the tests are non-standard. We generate new critical values via simulation methods. The size and power properties of these test statistics are evaluated through Monte Carlo simulations, which show the tests have small size distortions and very good power properties. The test methods introduced in this paper are applied to determine whether the financial markets in the US and the UK are integrated.
Purpose
This study aims to investigate the dynamic relationship between renewable and non-renewable energy sources on the economic growth of eight countries, the capital stock and labour force being ...used as control variables in each case. Questions that need to be asked include the following: Is there is an asymmetric and, hence, a non-linear relationship between variables? If yes, how does economic growth interact with both renewable and non-renewable energy consumption (EC)? How different are these relationships in the countries highly rated in the performance of renewable EC compared to those lowly rated?
Design/methodology/approach
This paper uses asymmetric quantile-based methods to extract possible asymmetric and, hence, non-linear relationships between the underlying variables.
Findings
A newly developed asymmetric panel quantile approach suggests that EC has a significant effect on economic growth in both directions of shocks as well as for the considered sample. The results further support the findings in recent literature on renewable energy deployment, given the importance of renewable EC for economic growth with the increased levels of renewable EC, although the initial investments may have a negative effect on economic growth for some countries.
Originality/value
This study contributes to the literature in twofold. Firstly, it aims to contribute to the ongoing debate in literature by incorporating both renewable and non-renewable energy resources in the production function with labour and capital to test their asymmetric impact on economic growth. Secondly, this paper uses asymmetric quantile-based methods to extract possible asymmetric and, hence, non-linear relationships between the underlying variables. Another point that should be emphasised in this study is the need for studies analysing economic growth and EC for a sample of G20 countries based on a comparative view for the renewable and non-renewable EC in literature.
Hidden panel cointegration Hatemi-J, Abdulnasser
Journal of King Saud University. Science,
January 2020, 2020-01-00, 2020-01-01, Volume:
32, Issue:
1
Journal Article
Peer reviewed
Open access
This paper focuses on an important empirical and methodological research question, namely possibly asymmetric and hence nonlinear cointegrating relationships between variables. It extends the Granger ...and Yoon (2002) method on hidden cointegration for time series data to a panel data framework. Solutions are provided for transforming the panel data variables with deterministic as well as stochastic trend parts into partial cumulative sums for positive and negative components. The transformed data can then be used to test for the long run relationship between the underlying components. The proposed method is applied to a small panel of three Scandinavian countries examining the presence of a long-term relationship between government consumption and economic growth based on quarterly data. First, the standard method that does not allow for asymmetry was implemented. The results do not provide evidence of a long-term relationship between the two variables. However, the results based on the tests suggested in this paper indicate that the underlying variables are indeed related in the long run. Thus, it might be important to separate the impact of positive shocks from the negative ones when the long run relationships between panel data variables are investigated.
Purpose - In all existing theoretical papers on causality it is assumed that the lag length is known a priori. However, in applied research the lag length has to be selected before testing for ...causality. The purpose of this paper is to suggest that in investigating the effectiveness of various Granger causality testing methodologies, including those using bootstrapping, the lag length choice should be endogenized, by which we mean the data-driven preselection of lag length should be taken into account.Design methodology approach - The size and power of a bootstrap test with endogenized lag-length choice are investigated by simulation methods. A statistical software component is produced to implement the test, which is available online.Findings - The simulation results show that this test performs well. An application of the test provides empirical support for the hypothesis that the UAE financial market is integrated with the US market.Social implications - The empirical results based on this test are expected to be more precise.Originality value - This paper considers a bootstrap test for causality with endogenous lag order. This test has superior properties compared to existing causality tests in terms of size, with similar if not better power and it is robust to ARCH effects that usually characterize financial data. Practitioners interested in causal inference based on time series data might find the test valuable.
This article argues that there are several logical reasons for the existence of asymmetric causal effects that need to be taken into account but usually are neglected in the literature. It suggests ...allowing for asymmetry in the causality testing by using the cumulative sums of positive and negative shocks. A bootstrap simulation approach with leverage adjustment is used to generate critical values that are robust to non-normality and time-varying volatility. An application to the efficient market hypothesis in the UAE is provided. The results show that the equity market is informationally efficient with regard to the oil shocks regardless if these shocks are positive or negative.
The emerging market of the UAE has chosen attracting international tourism as one of the main strategies during the recent decades in order to diversify its economy. The main goal has been to achieve ...sustainable growth without overreliance on the volatile oil sector. This article investigates the impact of tourism on economic performance in the UAE by using bootstrapped causality tests with leverage adjustments. The results show that the tourism-led growth hypothesis can be supported empirically. Thus, the conducted policy by the UAE government to promote international tourism for achieving economic growth might be considered as a sustainable strategy.
Insurance plays a fundamental role in any modern economy, but the literature has not accounted for the potential asymmetric causal impacts from the dynamic interaction between the insurance market ...and economic performance. This paper aims to fill this gap by studying the causal relationship between several measures of insurance per capita and real GDP per capita in the G7 countries over the period 1980–2014 via asymmetric panel causality tests. Our results show that insurance market activity and economic performance exhibit bidirectional causalities, but their direction, intensity and significance are different due to distinct market situations. In general, insurance activity plays a passive role in economic performance, while economic performance has a significant role in insurance activity. These findings offer several useful insights for policy makers and researchers.
In this study, a tool has been designed and developed for learning about the concept of lag order within a dynamic model, which can be used in any teaching classes on statistics and financial data ...computation. To show a solution for a complex and multi-step process of finding the optimal lag order for multiple variables data series based on an information criterion a module using Visual Basic for Applications (VBA) for Microsoft Excel (MS Excel) is being developed. This module can be used for estimating a multivariate dynamic model as well as determining the optimal lag order of such a model.
The aim of this article is to investigate the causal relationship between remittances and poverty reduction in Bangladesh over the period 1976 to 2010. This issue is of fundamental importance for the ...developing economy of Bangladesh. We apply newly developed methods by Hacker and Hatemi-J (2006, 2012) that are based on simulations and are robust to the violation of statistical assumptions especially when the sample size is small, as is the case in this article. Our estimation results reveal that causality nexus of poverty and remittances is bi-directional. We also find that the causal impact of poverty reduction on remittance is stronger than the reverse impact. This finding implies that Bangladeshi policy-makers can influence remittances through poverty reduction in the long run.
Since the seminal work by Sims (1980), the impulse response functions are regularly applied to capture the propagation mechanism of a shock across time. This paper suggests a new approach for ...allowing asymmetry in the impulse response functions. This is an issue that has been neglected in the existing literature on the estimation of impulses. In the current paper it is shown how the underlying variables can be transformed into cumulative positive and negative changes in order to estimate the impulses to an asymmetric innovation. An application is provided to demonstrate how the propagation mechanism of an asymmetric impulse operates.
•This paper introduces the asymmetric generalized impulse response functions.•This new approach relies on transforming variables into positive and negative parts.•The application shows how propagation mechanism of an asymmetric impulse operates.
PDF
