Statistical evidence on the mean reversion of real interest rates: SPSM using the Panel KSS test with a Fourier function

Applied Economics Letters (Impact Factor: 0.23). 09/2012; 19(13):1299-1304. DOI: 10.1080/13504851.2011.619489


This study applies the Sequential Panel Selection Method (SPSM) to test the mean reversion properties in the real interest rates for the G-10 countries (i.e. Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, the United Kingdom and the United States) over the period 1980M1 to 2010M12. SPSM classifies the whole panel into a group of stationary countries and a group of nonstationary countries. In doing so, we can clearly identify how many and which series in the panel are stationary processes. Empirical results from the SPSM using the Panel Kapetanios et al. (KSS; 200311.
Kapetanios , G. , Shin , Y. and Snell , A. 2003 . Testing for a unit root in the nonlinear STAR framework . Journal of Econometrics , 112 : 359 – 79 . [CrossRef], [Web of Science ®]View all references) test with a Fourier function indicate that the mean reversion holds true for all the G-10 countries. Our results have important policy implications for the G-10 countries under study.

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    ABSTRACT: This study applied the Sequential Panel Selection Method (SPSM) procedure proposed by Chortareas and Kapetanios (2009) to test the non-stationarity of long-run tourist arrivals to Taiwan for a sample of six main visiting countries from 1970 to 2010. This Panel KSS test (Ucar & Omay, 2009) with a Fourier function for the SPSM procedure considers both structural breaks and non-linear adjustment and, thus, more powerfully determines whether tourist arrivals are stationary compared to conventional unit root tests. The empirical results of the first and the second generations are mixed; however, when the nonlinear panel unit root test with a Fourier function for the SPSM procedure is conducted, evidence indicates that the series of tourist arrivals to Taiwan are trend stationary except Korea.
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    ABSTRACT: Our article tests for hysteresis of unemployment rate for 17 Eurozone countries over the period 2000:1 to 2013:1 through the use of new nonlinear panel unit root tests by adopting the sequential panel selection method (SPSM), proposed by Chortareas and Kapetanios (2009) and a nonlinear panel unit root test developed by Ucar and Omay (2009). The results show that the unemployment rates for 17 Eurozone countries are not stationary and conform to the hysteresis hypothesis for both panel unit root tests of Ucar and Omay (2009) and SPSM without Fourier. We reported the results of the Panel Kapetanios, Shin and Snell (KSS) test with a Fourier function and found that the unemployment rates in 11 countries are stationary and this result is in accord with natural rate hypothesis. On the other hand, unemployment rates in six countries, namely Netherlands, Slovakia, Slovenia, Italy, Portugal and Cyprus, show hysteresis effect.
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