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Purchasing Power Parity analyzed through a continuous-time version of the ESTAR model

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  • Nicolau, João
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    Abstract

    From the discrete-time Exponential Smooth Autoregressive model, we obtain a continuous-time version that provides new tools for analyzing the Purchasing Power Parity hypothesis.

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    Bibliographic Info

    Article provided by Elsevier in its journal Economics Letters.

    Volume (Year): 110 (2011)
    Issue (Month): 3 (March)
    Pages: 182-185

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    Handle: RePEc:eee:ecolet:v:110:y:2011:i:3:p:182-185

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    Web page: http://www.elsevier.com/locate/ecolet

    Related research

    Keywords: PPP Mean reversion Stochastic differential equation;

    References

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    1. Peel, David & Sarno, Lucio & Taylor, Mark P, 2001. "Nonlinear Mean-Reversion in Real Exchange Rates: Towards a Solution to the Purchasing Power Parity Puzzles," CEPR Discussion Papers 2658, C.E.P.R. Discussion Papers.
    2. Lutz Kilian & Mark P. Taylor, 2001. "Why is it so difficult to beat the Random Walk Forecast of Exchange Rates?," Tinbergen Institute Discussion Papers 01-031/4, Tinbergen Institute.
    3. Paya, Ivan & Peel, David A., 2006. "On the speed of adjustment in ESTAR models when allowance is made for bias in estimation," Economics Letters, Elsevier, vol. 90(2), pages 272-277, February.
    4. Jo�o Nicolau, 2002. "A new technique for simulating the likelihood of stochastic differential equations," Econometrics Journal, Royal Economic Society, vol. 5(1), pages 91-103, June.
    5. Chen, Xiaohong & Hansen, Lars Peter & Carrasco, Marine, 2010. "Nonlinearity and temporal dependence," Journal of Econometrics, Elsevier, vol. 155(2), pages 155-169, April.
    6. Lucio Sarno, 2000. "Systematic sampling and real exchange rates," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 136(1), pages 24-57, March.
    7. Alan M. Taylor, 2000. "Potential Pitfalls for the Purchasing-Power-Parity Puzzle? Sampling and Specification Biases in Mean-Reversion Tests of the Law of One Price," NBER Working Papers 7577, National Bureau of Economic Research, Inc.
    8. Nelson, Daniel B., 1990. "ARCH models as diffusion approximations," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 7-38.
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