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Original Articles

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

Pages 393-395 | Published online: 22 Oct 2010
 

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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