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Purchasing Power Parity, Productivity Differentials And Non-Linearity

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Author Info
JYH-LIN WU
PEI-FEN CHEN
CHING-NUN LEE
Abstract

The purpose of this paper is to apply a symmetric band threshold autoregressive model to investigate the non-linear adjustment of the real pound-dollar rate over a period from 1885 to 2003. After controlling for the Harrod-Balassa-Samuelson effects, we find evidence to support a non-linear mean reversion of the real pound-dollar rate. Moreover, the estimated half-life is about two years with large shocks. We therefore provide a solution to the purchasing power parity puzzle. Copyright © 2009 The Authors. Journal compilation © 2009 Blackwell Publishing Ltd and The University of Manchester.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9957.2009.02097.x
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Article provided by University of Manchester in its journal The Manchester School.

Volume (Year): 77 (2009)
Issue (Month): 3 (06)
Pages: 271-287
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Handle: RePEc:bla:manchs:v:77:y:2009:i:3:p:271-287

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This page was last updated on 2009-12-19.

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