Zanetti Chini, Emilio (2010): Does the purchasing power parity hypothesis hold after 1998?
There is a more recent version of this item available. 

PDF
MPRA_paper_27225.pdf Download (6Mb)  Preview 
Abstract
We investigate the empirical support to the Purchasing Power Parity hypothesis by using sixteen real exchange rates for the decade 19992009. The literature has recently arrived to a solution to the two PPP puzzles if considering the postBretton Woods period from 1975 to 1998. Time seriesbased studies consider few cases, while panelbased studies have been recently criticized. Multivariate and panel cointegration, and nonlinear models are here implemented. The theory is rejected and both the puzzles remain unsolved if considering a linear structure, while a nonlinear scenario seems to allow for a partial solution to the first puzzle.
Item Type:  MPRA Paper 

Original Title:  Does the purchasing power parity hypothesis hold after 1998? 
Language:  English 
Keywords:  PPP; unit roots; cointegration; nonlinear models; IRF 
Subjects:  C  Mathematical and Quantitative Methods > C3  Multiple or Simultaneous Equation Models; Multiple Variables > C32  TimeSeries Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models C  Mathematical and Quantitative Methods > C5  Econometric Modeling > C50  General C  Mathematical and Quantitative Methods > C2  Single Equation Models; Single Variables > C22  TimeSeries Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models F  International Economics > F3  International Finance > F31  Foreign Exchange 
Item ID:  27225 
Depositing User:  Emilio Zanetti Chini 
Date Deposited:  06. Dec 2010 01:02 
Last Modified:  14. Feb 2013 15:32 
References:  Bacon D, Watts D. 1971. Estimating the transition between two intersecting straight lines. Biometrika 58: 525–534. Banerjee A, Marcellino M, Osbat C. 2005. Testing for PPP: Should we use panel methods? Empirical Economics 30: 77–91. DOI: 10.1007/s0018100402228. Camacho M. 2004. Vector Smooth Transition Regression models for US GDP and the composite index of leading vectors. Journal of Forecasting 23: 173–196. DOI: 10.1002/for.912. Chan K, Tong H. 1986. On estimating thresholds in autoregressive models. Journal of Time Series Analysis 7: 178–190. DOI: 10.1111/j.14679892.1986.tb00501.x. Coleman A. 1995. Arbitrage, Storage and the Law of One Price: New Theory for the Time Series Analysis of an Old Problem. Discussion Paper. Department of Economics. Princeton University. Dennis J, Hansen H, Johansen S, Juselius K. 2006. CATS in RATS. Cointegration Analysis of Time Series, Version 2. Estima: Evanston. Eitrheim O, Teräsvirta T. 1996. Testing the adequacy of smooth transition autoregressive models. Journal of Econometrics 74: 59–75. DOI: 10.1016/03044076(95)017518. Elliott G, Rothemberg T, Stock J. 1996. Efficient Tests for an Autoregressive Unit Root. Econometrica 64: 813–836. Gallant A, Rossi P, Tauchen G. 1993. Nonlinear Dynamic Structures. Econometrica 61:871–907. Gonzàlez A, Teräsvirta T, van Dijk D. 2005. Panel Smooth Transition Regression Models. Quantitative Finance Research Centre. Research Paper. Granger C, Teräsvirta T. 1993. Modelling Nonlinear Economic Relationships. Oxford: Oxford University Press. Hadri K. 2000. Testing for stationarity in heterogeneous panel data. Econometrics Journal 3: 148–161. DOI: 10.1111/1368423X.00043. Hansen B. 1996. Inference when a nuisance parameter is not identified under the null hypothesis. Econometrica 64: 413–30. Hinich M. 1996. Testing for dependence in the input to a linear time series model. Journal of Nonparametric Statistic 6: 205–221. DOI: 10.1080/10485259608832672. Im K, Pesaran M, Shin Y. 2003. Testing for unit roots in heterogeneous panels. Journal of Econometrics 115: 53–74. Johansen S. 1991. Estimation and Hypothesis Testing of Cointegrating Vectors in Gaussian Vectors Autoregressive Models. Econometrica. 59: 1551–1580. Johansen S. 2002. A small sample correction for tests of hypotheses on the cointegrated vectors. Journal of Econometrics 111: 195–221. Johansen S, Juselius K, Frydman R, Goldberg M. 2010. Testing hypotheses in an I(2) model with piecewise linear trends. An analysis of the persistent long swings in the Dmk/$ rate. Journal of Econometrics 158: 117–129. DOI: 10.1016/j.jeconom.2010.03.018. Juselius K. 2006. The Cointegrated VAR Model: Methodology and Applications. Oxford: Oxford University Press. Kao C. 1999. Spurious regressions and residualbased tests for cointegration in panel data. Journal of Econometrics 90: 1–44. Koop G, Pesaran M, Potter S. 1996. Impulse Response Analysis in Nonlinear Multivariate Models. Journal of Econometrics 74: 119–147. DOI: 10.1016/03044076(95)017534. Kwiatkowski D, Phillips P, Shmidt P, Shin Y. 1992. Testing the null hypothesis of stationarity against the alternative of a unit root: How sure are we that economic time series have a unit root? Journal of Econometrics 54: 159–178. DOI: 10.1016/03044076(92)90104Y. Levin A, Lin C, Chu C. 2002. Unit root test in panel data: Asymptotic and finite sample properties. Journal of Econometrics 87: 207–237. DOI: 10.1016/S03044076(01)000987. Luukkonen R, Saikkonen P, Teräsvirta T. 1988. Testing linearity against smooth transition autoregressive models. Biometrika 75: 491–499. Maddala G, Wu S. 1999. A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and Statistics 61: 631–652. DOI: 10.1111/14680084.0610s1631. McCoskey S, Kao C. 1998. A residualbased test of the null of cointegration in panel data techniques. Econometric Reviews 17: 57–84. DOI: 10.1080/07474939808800403. McLeod A, Li W. 1983. Diagnostic checking ARMA time series models using squaredresidual autocorrelations. Journal of Time Series Analysis 4: 269–273. DOI: 10.1111/j.14679892.1983.tb00373.x. Nyblom J, Harvey A. 2000. Tests of Common Stochastic Trends. Econometric Theory 16: 176–199. Pedroni P. 2001. Purchasing power parity tests in cointegrated panels. The Review of Economics and Statistics 83: 727–731. doi:10.1162/003465301753237803. Pedroni P. 2004. Panel cointegration: asymptotic and finite sample properties of pooled time series tests with an application to the PPP hypothesis. Econometric Theory 20: 597–625. DOI: 10.1017/S0266466604203073. Pesaran M. 2007. A Simple Panel Unit Root Test for CrossSection Dependance. Journal of Applied Econometrics 22: 265–312. DOI: 10.1002/jae.951. Rogoff K. 1996. The Purchasing Power Parity Puzzle. Journal of Economic Literature 34: 647–668. Sarno L, Taylor M. 2001. Purchasing Power Parity and the Real Exchange Rates. CEPR Discussion Papers 2913. Taylor M, Peel D, Sarno L. 2001. Nonlinear Mean Reversion in Real Exchange Rates: Towards a Solution to the Purchasing Power Parity Puzzles. International Economic Review : 1015–1042DOI: 10.1111/14682354.0014. Teräsvirta T. 1994. Specification, estimation and evaluation of smooth transition autoregressive models. Journal of the American Statistical Association 89: 208–218. Tong H. 1983. Threshold Models in NonLinear Time Series Analysis. Number 21 in Lecture Notes in Statistics. New York: SpringerVerlag. Tsay R. 1989. Testing and modeling threshold autoregressive processes. Journal of the American Statistical Association 84: 231–240. Westerlund J. 2007. Testing for Error Correction in Panel Data. Oxford Bulletin of Economics and Statistics 69: 709–748. DOI: 10.1111/j.14680084.2007.00477.x. 
URI:  http://mpra.ub.unimuenchen.de/id/eprint/27225 
Available Versions of this Item
 Does the purchasing power parity hypothesis hold after 1998? (deposited 06. Dec 2010 01:02) [Currently Displayed]