Kim, Hyeongwoo and Moh, Young-Kyu (2009): A Century of Purchasing Power Parity Confirmed: The Role of Nonlinearity.
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Taylor (2002) claims that Purchasing Power Parity (PPP) has held over the 20th century based on strong evidence of stationarity for century-long real exchange rates for 20 countries. Lopez et al. (2005), however, found much weaker evidence of PPP with alternative lag selection methods. We reevaluate Taylor’s claim by implementing a recently developed nonlinear unit root test by Park and Shintani (2005). We find strong evidence of nonlinear mean-reversion in real exchange rates that confirms Taylor’s claim. We also find a possible misspecification problem in using the ESTAR model that may not be detected with Taylor-approximation based tests.
|Item Type:||MPRA Paper|
|Original Title:||A Century of Purchasing Power Parity Confirmed: The Role of Nonlinearity|
|Keywords:||Purchasing Power Parity; Transition Autoregressive Process; inf-t Unit Root Test|
|Subjects:||C - Mathematical and Quantitative Methods > C2 - Single Equation Models; Single Variables > C22 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
F - International Economics > F3 - International Finance > F31 - Foreign Exchange
|Depositing User:||Dr. Hyeongwoo Kim|
|Date Deposited:||24. Sep 2009 06:52|
|Last Modified:||14. Feb 2013 16:44|
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