STRUCTURAL BREAKS AND STATIONARITY OF THE CONSUMPTION-INCOME RATIO: NEW EVIDENCE FOR LATIN AMERICA AND THE UNITED STATES

Abstract

This paper investigates the stationarity of the consumption-income ratio for 11 countries in Latin America and the United States in the period 1951-2010. Initially, it is tested the existence of multiple structural breaks at unknown dates in the trend function of consumption-income ratio. The test used, suggested by Perron and Yabu (2009) and Kejriwal and Perron (2010), is robust to the fact that the noise component of the time series is stationary or integrated. Then, it is employed the unit root tests proposed by Carrion-i-Silvestre et al. (2009), which allows for multiple breaks in the level and slope of the trend function. The results indicate the presence of two breaks in the trend function of the consumption-income ratio for most of the economies analyzed. The exceptions are Colombia and Paraguay, which have only one break. In the US case, the hypothesis of no structural break in the trend function of the parameters of the average propensity to consume cannot be rejected. Regarding the order of integration of consumption-income ratio, the results indicate that this variable is not stationary for all countries in the sample, with the exception of Peru.