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Purchasing Power Parity, Productivity Differentials And Non-Linearity

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  • 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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Bibliographic Info

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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Cited by:
  1. Woo, Kai-Yin & Lee, Shu-Kam & Chan, Alan, 2014. "Non-linear adjustments to intranational PPP," Journal of Macroeconomics, Elsevier, Elsevier, vol. 40(C), pages 360-371.
  2. Paul R. Bergin & Reuven Glick & Jyh-Lin Wu, 2009. "The Micro-Macro Disconnect of Purchasing Power Parity," NBER Working Papers 15624, National Bureau of Economic Research, Inc.
  3. Wu, Jyh-Lin & Cheng, Su-Yin & Hou, Han, 2011. "Further evidence on purchasing power parity and country characteristics," International Review of Economics & Finance, Elsevier, Elsevier, vol. 20(2), pages 257-266, April.

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