A Confirmatory Analysis of the Unit Root Hypothesis for OECD Consumption-Income Ratios

Abstract

This paper investigates the existence of a unit root in the consumption-income ratio for a sample of 23 OECD countries over the period 1960-2005. For that purpose, we first use recently developed unit root tests with good size and power. Second, we employ the more powerful panel unit root tests of Smith et al. (2004) and Pesaran (2003) that take the null of nonstationarity and a bootstrap version of the test of Hadri (2000) that takes stationarity as the null hypothesis. Overall, our confirmatory analysis renders clear-cut evidence that OECD consumption-income ratios contain a unit root.