ARDL bounds testing approach is a cointegration method developed by Pesaran et al. (2001) to test presence of the long run relationship between the variables. This procedure, relatively new method, has many advantages over the classical cointegration tests. Firstly, the approach is used irrespective of whether the series are I(0) or I(1). Secondly, unrestricted error correction model (UECM) can be derived from the ARDL bounds testing through a simple linear transformation. This model has both short and long run dynamics. Thirdly, the empirical results show that the approach is superior and provides consistent results for small sample.
Published in Chapter:
Financial Development and Energy Consumption in Turkey: Empirical Evidence from Cointegration and Causality Tests
Murat Çetin (Namık Kemal University, Turkey), Eyyup Ecevit (Erciyes University, Turkey), Fahri Seker (Bozok University, Turkey), and Davuthan Günaydin (Namık Kemal University, Turkey)
Copyright: © 2015
|Pages: 18
DOI: 10.4018/978-1-4666-7484-4.ch018
Abstract
This chapter investigates the cointegration and causal relationship between financial development and energy consumption in the case of Turkey over the period 1960-2011. In doing so, the ARDL bounds testing and Johansen-Juselius approaches to cointegration and Granger causality test based on vectorerror correction model are employed. The empirical results show that the series are cointegrated. The empirical results also show a positive and statistically significant relationship between financial development and energy consumption in the long run. In addition, a unidirectional causality running from financial development to energy consumption is found in the short and long run. Thus, this chapter provides an empirical evidence that financial development is a determinant of energy consumption in Turkey. This chapter also presents some implications for Turkey's energy policy.