Testing Stationarity of Consumption-Income Ratios Incorporating Nonlinearities and Asymmetries: Evidence from Emerging Economies
Isra Khan, Tanweer Ul Islam, Ph.D. Abstract To account for the nonlinearities and asymmetries while studying the stochastic properties of consumption-income ratios, Average Propensity to Consume (APC), for fourteen emerging economies, this study calls in the exponential smooth transition autoregressive (ESTAR) and asymmetric exponential smooth transition autoregressive (AESTAR)unit root testing procedures developed by Kapetanios, Shin, & Snell (2003) and Sollis (2009). Except for Chile, Morocco and Peru, consumption-income ratios turn out to be non-stationary processes for the selected time periods. Thus, the consumption behaviors in these countries appear to be congruent with the Absolute Income Hypothesis (AIH), Involuntary Savings and Marxian Under-compensating Theories. Accordingly, the policy implications have permanent effects on the consumption of households for all the countries except for Chile, Morocco and Peru. This warrants the use of fiscal policy for these countries.

Full Text: PDF