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Now showing 1 - 10 of 23
  • Article
    Citation - WoS: 1
    Citation - Scopus: 2
    Controlling Heterogeneous Structure of Smooth Breaks in Panel Unit Root and Cointegration Testing
    (Springer, 2023) Omay, Tolga; Iren, Perihan
    This study aims to show the consequences of a restrictive homogeneity assumption of frequency in heterogeneous panel unit root and cointegration testing with Flexible Fourier Form. For this purpose, we use a simple panel unit root and residual based cointegration test with Flexible Fourier Form in a heterogeneous frequency setting using a bootstrap algorithm. The power of the test statistics and empirical analysis results indicate that failing to take into account a heterogeneous frequency may lead to misleading inferences, thereby leading to misspecified tests and erroneous conclusions concerning the stochastic behavior of the data in the panel sample.
  • Article
    Citation - WoS: 11
    Testing the Hysteresis Effect in the Us State-Level Unemployment Series
    (Routledge Journals, Taylor & Francis Ltd, 2020) Omay, Tolga; Ozcan, Burcu; Shahbaz, Muhammed
    This paper re-examines the stochastic time series behaviour of the monthly unemployment rate in 50 states of the United States (US) for the period 1976-2017 using a number of state-of-the-art unit root tests. The new developments incorporate structural break, nonlinearity, asymmetry, and cross-sectional correlation within panel-data estimation including the use of a sequential panel selection method. While not previously considered, sequential panel selection enabled us to determine and separate the stationary and nonstationary series in the sample. The empirical findings are in support of the stationarity of unemployment rate in 47 states. The findings confirm a natural rate hypothesis for the labour markets in the most US states, indicating that labour market shocks have solely temporary effects on state-level unemployment. This empirical study provides significant state-specific policy implications.
  • Article
    Citation - WoS: 47
    Citation - Scopus: 47
    Global Risk Aversion and Emerging Market Return Comovements
    (Elsevier Science Sa, 2018) Demirer, Riza; Omay, Tolga; Yuksel, Asli; Yuksel, Aydin
    Utilizing the recently developed measure of global risk aversion by Xu (2017), we show that global risk aversion is a significant determinant of international equity correlations, consistently across all emerging markets examined. The positive effect of risk aversion on emerging market comovements is particularly strong for South Africa and Turkey and is consistent with contagion effects. The results underscore the importance of non-cash flow shocks in models of contagion and portfolio risk. (C) 2018 Elsevier B.V. All rights reserved.
  • Article
    Citation - WoS: 7
    Citation - Scopus: 6
    Oil and Stock Prices: New Evidence From a Time Varying Homogenous Panel Smooth Transitionvecmfor Seven Developing Countries
    (Wiley, 2022) Ceylan, Resat; Ivrendi, Mehmet; Shahbaz, Muhammed; Omay, Tolga
    This paper investigates the relationship between international oil price and stock prices applying the time varying causality testing over the period of 2000(M1)-2017(M3). The panel unit root and panel cointegration tests considering cross-section dependence are also employed. A time varying panel smooth transition vector error correction (TV-PSTRVEC) model is a developed and estimated for testing the presence of non-linear short-run and long-run causality, and cointegrating relationship between stock and oil prices. The empirical findings indicate that short and long-run causalities between oil price and stock prices are time-dependent. Moreover, oil price cause stock prices in the long-run. In the short-run, neutral effect exists between oil price and stock prices. These two findings are evidence of a strong exogeneity of oil price in time-dependent regimes which is also supporting the recent arguments and empirical findings.
  • Article
    Citation - WoS: 2
    Citation - Scopus: 1
    Comparison of the Performance of Structural Break Tests in Stationary and Nonstationary Series: a New Bootstrap Algorithm
    (Springer, 2024) Camalan, Ozge; Hasdemir, Esra; Omay, Tolga; Kucuker, Mustafa Can
    Structural breaks are considered as permanent changes in the series mainly because of shocks, policy changes, and global crises. Hence, making estimations by ignoring the presence of structural breaks may cause the biased parameter value. In this context, it is vital to identify the presence of the structural breaks and the break dates in the series to prevent misleading results. Accordingly, the first aim of this study is to compare the performance of unit root with structural break tests allowing a single break and multiple structural breaks. For this purpose, firstly, a Monte Carlo simulation study has been conducted through using a generated homoscedastic and stationary series in different sample sizes to evaluate the performances of these tests. As a result of the simulation study, Zivot and Andrews (J Bus Econ Stat 20(1):25-44, 1992) are the best-performing tests in capturing a single break. The most powerful tests for the multiple break setting are those developed by Kapetanios (J Time Ser Anal 26(1):123-133, 2005) and Perron (Palgrave Handb Econom 1:278-352, 2006). A new Bootstrap algorithm has been proposed along with the study's primary aim. This newly proposed Bootstrap algorithm calculates the optimal number of statistically significant structural breaks under more general assumptions. Therefore, it guarantees finding an accurate number of optimal breaks in real-world data. In the empirical part, structural breaks in the real interest rate data of the US and Australia resulting from policy changes have been examined. The results concluded that the bootstrap sequential break test is the best-performing approach due to the general assumption made to cover real-world data.
  • Article
    Citation - WoS: 1
    Citation - Scopus: 1
    A Unit Root Test With Markov Switching Deterministic Components: A Special Emphasis on Nonlinear Optimization Algorithms
    (Springer, 2023) Omay, Tolga; Corakci, Aysegul
    In this study, we investigate the performance of different optimization algorithms in estimating the Markov switching (MS) deterministic components of the traditional ADF test. For this purpose, we consider Broyden, Fletcher, Goldfarb, and Shanno (BFGS), Berndt, Hall, Hall, Hausman (BHHH), Simplex, Genetic, and Expectation-Maximization (EM) algorithms. The simulation studies show that the Simplex method has significant advantages over the other commonly used hill-climbing methods and EM. It gives unbiased estimates of the MS deterministic components of the ADF unit root test and delivers good size and power properties. When Hamilton's (Econometrica 57:357-384, 1989) MS model is re-evaluated in conjunction with the alternative algorithms, we furthermore show that Simplex converges to the global optima in stationary MS models with remarkably high precision and even when convergence criterion is raised, or initial values are altered. These advantages of the Simplex routine in MS models allow us to contribute to the current literature. First, we produce the exact critical values of the generalized ADF unit root test with MS breaks in trends. Second, we derive the asymptotic distribution of this test and provide its invariance feature.
  • Article
    Citation - WoS: 10
    Citation - Scopus: 10
    Comparison of Optimization Algorithms for Selecting the Fractional Frequency in Fourier Form Unit Root Tests
    (Routledge Journals, Taylor & Francis Ltd, 2021) Omay, Tolga; Emirmahmutoglu, Furkan; Hussain Shahzad, Syed Jawad
    We compare the performance of unit root tests which include flexible Fourier trends in their testing processes. The algorithms considered are those of Broyden, Fletcher, Goldfarb and Shanno (BFGS), Berndt, Hall, Hall and Hausman (BHHH), Simplex, Genetic and grid search (GS). The simulation results indicate that derivative-free methods, such as Genetic and Simplex, have advantages over hill-climbing methods, such as BFGS and BHHH in providing accurate fractional frequencies for fractional frequency flexible Fourier form (FFFFF) unit root test. When the parameters are estimated under the alternative hypothesis of the FFFFF type of unit root test, the grid search and derivative-free methods provide unbiased and efficient estimations. We also provide the asymptotic distribution of the FFFFF unit root test. We extend the FFFFF unit root test to a panel version in order to increase the power of the test. Finally, the empirical analyses of healthcare convergence show that derivative-free methods, hill climbing and extensive grid searches can be used interchangeably. However, for big data and accurate estimation of the frequency parameters, the Simplex methodology using the bootstrap process is preferred.
  • Article
    Citation - WoS: 5
    Citation - Scopus: 5
    Historical Environmental Kuznets Curve for the Usa and the Uk: Cyclical Environmental Kuznets Curve Evidence
    (Springer, 2024) Omay, Tolga; Yildirim, Julide; Balta-Ozkan, Nazmiye
    Human activities, including population growth, industrialization, and urbanization, have increasingly impacted the environment. Despite the benefits of economic growth to individual welfare, its negative environmental consequences necessitate a thorough assessment. The environmental Kuznets curve (EKC), positing an inverted U-shaped relationship between income per capita and environmental degradation, has been extensively studied since its proposition by Grossman and Krueger (Environmental impacts of a North American free trade agreement, National Bureau of Economic Research working paper, 1991. https://doi.org/10.3386/w3914). However, empirical evidence on the validity and shape of the EKC varies due to methodological differences, country-specific dynamics, and other factors. Examining the historical growth paths of individual countries helps explain the mixed findings in empirical EKC research. Long-term data allow researchers to determine the EKC's shape and turning points, aiding policymakers in devising appropriate environmental policies for each economic growth cycle within the framework of global environmental governance. Accordingly, this study contributes to the literature by taking a historical perspective on the EKC, focusing specifically on the United States and the United Kingdom. Drawing on data spanning from 1850, we employ advanced econometric techniques, including fractional frequency flexible Fourier form Dickey-Fuller-type unit root tests and structural breaks unit root tests, to overcome limitations of traditional linearized EKC estimations. Moreover, the classical polynomial regression approach is employed to model the long-term cycles based on the scatterplot inspection of per capita carbon dioxide (CO2) and per capita GNP series. Contrary to conventional expectations, our empirical findings do not support the existence of a clear inverted U-shaped EKC relationship between CO2 emissions and economic growth for either country. Instead, our analysis reveals the presence of multiple regimes, indicating a cyclical pattern where economic growth affects environmental quality with varying severity over time. Furthermore, we demonstrate proper modeling techniques for the EKC, highlighting the importance of identification and misspecification tests. Our study identifies cyclical EKC patterns for both the UK and the USA, with the UK exhibiting two cycles and the USA exhibiting three, shaped by varying economic, social, and technological contexts. By revealing the nuances of the economic growth-environmental degradation nexus for these early developer countries, our study provides valuable insights for policymakers seeking to devise evidence-based and environmentally sustainable growth policies within the framework of global environmental governance. These findings underscore the importance of considering historical context and structural changes when analyzing the EKC, providing valuable insights for policymakers aiming to design adaptive and sustainable economic growth strategies.
  • Article
    Citation - WoS: 1
    Citation - Scopus: 1
    Re-Examining the Real Interest Rate Parity Hypothesis Under Temporary Gradual Breaks and Nonlinear Convergence
    (Springer Heidelberg, 2023) Hasanov, Mubariz; Omay, Tolga; Abioglu, Vasif
    This paper investigates the real interest parity hypothesis by testing stationarity of real interest rate differentials for 52 countries with respect to the USA. Taking account of the fact that both asymmetric adjustment and gradual temporary breaks may better characterize the dynamics of real interest rate differentials, we propose a new test that allows for two temporary shifts together with asymmetric adjustment towards the equilibrium. We employ the newly proposed test procedure along with the conventional ADF test as well as nonlinear KSS and OSH tests to examine stationarity of real interest rate differentials. Among the main results, we find that the newly proposed unit root test procedure highly outperforms the existing unit root tests in terms of rejecting the null hypothesis of unit root. Our results suggest that real interest rate differentials can be characterized by a stationary process with asymmetric adjustment around gradual and temporary shifts of mean.
  • Article
    Citation - WoS: 13
    Citation - Scopus: 14
    Inflation-Growth Nexus: Evidence From a Pooled Cce Multiple-Regime Panel Smooth Transition Model
    (Physica-verlag Gmbh & Co, 2018) Omay, Tolga; van Eyden, Renee; Gupta, Rangan
    This paper analyses the empirical relationship between inflation and growth using a panel data estimation technique, multiple-regime panel smooth transition regression, which takes into account the nonlinearities in the data. By using a panel data set for 10 countries in the Southern African Development Community permitting us to control for unobserved heterogeneity at both country and time levels, we find that a statistically significant negative relationship exists between inflation and growth for inflation rates above the critical threshold levels of 12 and 32% which are endogenously determined. Furthermore, we remedy the cross-section dependence with the common correlated effects estimator.