Appendix C: Order of Integration Tests | RDP 9208: Credit Supply and Demand and the Australian Economy

RDP 9208: Credit Supply and Demand and the Australian Economy Appendix C: Order of Integration Tests

Adrian Blundell-Wignall and Marianne Gizycki

July 1992

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The following tables contain the results of testing for the order of integration of each variable. A variable is said to be integrated of order j if, after differenceing j times, the variable is stationary. Two tests of stationarity are reported – the ADF test and the Z test.

The ADF test is the Augmented Dickey Fuller test. The following regression is estimated:

where k is the number of lags in the autocorrelation correction. The significance of the constant (α) and the time trend (ϕ) is tested by comparing their t-statistics with the critical values presented in Dickey and Fuller (1981). If appropriate, either or both of these variables are eliminated and the regression is re-estimated. The t-statistic on β is then compared with the critical values given by Fuller (1976) .

Z is the test proposed in Phillips (1987). This test involves making non parametric adjustments to the ADF test. For both tests a significant result indicates stationarity.

Sample Period: December 1982 – June 1991; Monthly Data Autocorrelation Correction = 12 Lags
Level of:
	Constant	Trend	ADF	Z
Overdraft Rate	3.709^*	0.624	−3.703^*	−2.439^*
(Log of) Business Credit	2.629^*	−1.61	−2.621	−2.331^*
Expected Inflation	1.752	−0.249	−0.953	−1.898
Expected Investment	−0.897	−0.357	−1.676	−1.339
* denotes significance at the 5 % level ** denotes significance at the 10 % level

Sample Period: December 1982 – June 1991; Monthly Data Autocorrelation Correction = 12 Lags
Level of:
	Constant	Trend	ADF	Z
Price-Earnings Ratio Differential between the Loan Rate and the Weighted Cost of Funds	1.86 2.24^**	−1.0167 −1.49	−0.31 −2.254	−2.133 −2.393^*
(Log of) Corporate Net Worth Banks' Share Prices	1.535 1.84	0.115 0.467	1.416 −0.902	−1.703 −1.877
(Log of) Broad Money plus Banks' Capital	1.417	2.132	0.433	−1.296
Differential between the Loan Rate and the CD Rate	−1.658	3.232^*	−2.945	−5.068^*
Differential between the Loan Rate and the Mortgage Rate	1.993	−1.77	−0.918	−2.079
Relative Bank Share Price Variance	1.895	0.76	−0.246	−1.108
First Difference of:
Overdraft Rate (Log of) Business Credit	0.085 2.703	−1.183 −2.768^**	−2.06^** −1.31	−6.335^* −9.048^*
Expected Inflation	−0.605	−0.49	−3.117^*	−6.157^*
Expected Investment	−0.559	−0.793	−2.4^*	−3.923^*
Price-Earnings Ratio	−0.14	−0.324	−3.068^*	−11.608^*
Differential between the Loan	−0.118	−0.604	−2.841^*	−8.875^*
Rate and the Weighted Cost of Funds
(Log of) Corporate Net Worth Banks' Share Prices	1.351 −0.105	−1.274 0.636	−2.022^* −2.89^*	−9.125^* −6.924^*
(Log of) Broad Money plus Banks' Capital	0.6139	−1.359	−0.946	−8.918^*
Differential between the Loan Rate and the CD Rate	0.411	1.549	−2.899^*	−15.38^*
* denotes significance at the 5 % level ** denotes significance at the 10 % level

Sample Period: December 1982 – June 1991; Monthly Data Autocorrelation Correction = 12 Lags
First difference of:
	Constant	Trend	ADF	Z
Differential between the Loan Rate and the Mortgage Rate	−0.055	−0.436	−2.231^*	−6.664^*
Relative Bank Share Price Variance	0.2	0.643	−2.112^*	−2.721^*
Second Difference of:
(Log of) Business Credit	2.646	−2.712^**	−3.726^*	−44.797^*
(Log of) Broad Money plus Banks' Capital	−0,704	−1.293	−3.709^*	−23.242^*

Sample Period: December 1976 – December 1991; Quarterly Data Autocorrelation Correction = 5 Lags
Level of:
	Constant	Trend	ADF	Z
(Log of) Business Credit	1.997	2.3301	−2.338^*	0.211
(Log of) AFI Credit	1.503	2.449^**	−0.146	0.794
(Log of) Nominal Investment	1.702	1.806	−0.692	−1.390
(Log of) Total GDP	1.698	2.241	0.857	0.039
The Loan Rate	3.947^*	1.955	−3.357^*	–
First Difference of:
(Log of) Business Credit	0.67	−1.09	−1.257	−1.486
(Log of) AFI Credit	1.326	0.189	−1.215	−1.589
(Log of) Nominal Investment	−0.157	−1.373	−1.007	−5.989^*
(Log of) Total GDP	1.64	−0.135	−0.743	−5.259^*
The Loan Rate	0.171	−1.257	−3.156^*	–
* denotes significance at the 5 % level ** denotes significance at the 10 % level

Sample Period: December 1976 – December 1991; Quarterly Data Autocorrelation Correction = 5 Lags
Second Difference of:
	Constant	Trend	ADF	Z
(Log of) Business Credit	−0.703	−1.683	−0.835	−8.277^*
(Log of) AFI Credit	−0.528	−1.287	−1.234	−7.669^*
(Log of) Nominal Investment	−0.697	−1.161	−3.655^*	−25.748^*
(Log of) Total GDP	−0.142	1.097	−3.799^*	−22.148^*
* denotes significance at the 5 % level ** denotes significance at the 10 % level