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Revisiting Purchasing Power Parity for Nine Transition Countries Using the Rank Test for Nonlinear Cointegration

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Author Info

  • Chang, Tsangyao

    () (Department of Finance, Feng Chia University, Taichung, Taiwan)

  • Chiu, Chi Chen

    (Department of Banking and Finance, Tamkang University, Taipei, Taiwan)

  • Tzeng, Han Wen

    (Department of Finance, Overseas Chinese University, Taichung, Taiwan)

Abstract

This study applies the powerful rank test for nonlinear cointegration proposed by Brietung (2001) to test the validity of long-run purchasing power parity (PPP) for nine transition countries from January 1995 to December 2008. The empirical results indicate that PPP holds true for all nine transition countries studied. Our results have important policy implications for these nine transition countries.

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Bibliographic Info

Article provided by Institute for Economic Forecasting in its journal Romanian Journal for Economic Forecasting.

Volume (Year): (2011)
Issue (Month): 2 (June)
Pages: 19-30

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Handle: RePEc:rjr:romjef:v::y:2011:i:2:p:19-30

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Keywords: Rank Test for Nonlinear Cointegration; Purchasing Power Parity; Transition Countries;

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References

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  1. Luciana Juvenal & Mark P. Taylor, 2008. "Threshold adjustment in deviations from the law of one price," Working Papers 2008-027, Federal Reserve Bank of St. Louis.
  2. Breitung, Jörg, 1998. "Rank tests for nonlinear cointegration," SFB 373 Discussion Papers 1998,65, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  3. Taylor, Mark P & Peel, David A & Sarno, Lucio, 2001. "Nonlinear Mean-Reversion in Real Exchange Rates: Toward a Solution to the Purchasing Power Parity Puzzles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1015-42, November.
  4. Lothian, James R & Taylor, Mark P, 1996. "Real Exchange Rate Behavior: The Recent Float from the Perspective of the Past Two Centuries," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 488-509, June.
  5. Alfred A. Haug & Syed A. Basher, 2007. "Linear or Nonlinear Cointegration in the Purchasing Power Parity Relationship?," Working Papers 0712, University of Otago, Department of Economics, revised Aug 2007.
  6. Minoas Koukouritakis, 2009. "Testing the purchasing power parity: evidence from the new EU countries," Applied Economics Letters, Taylor and Francis Journals, vol. 16(1), pages 39-44.
  7. Lutz Kilian & Mark P. Taylor, 2001. "Why Is It So Difficult to Beat the Random Walk Forecast of Exchange Rates?," Working Papers 464, Research Seminar in International Economics, University of Michigan.
  8. Mark P. Taylor, 1995. "The Economics of Exchange Rates," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 13-47, March.
  9. Taylor, Alan & Taylor, Mark, 2004. "The Purchasing Power Parity Debate," Working Papers 04-6, University of California at Davis, Department of Economics.
  10. Sarno, Lucio & Taylor, Mark P, 1997. "The Behaviour of Real Exchange Rates During the Post-Bretton Woods Period," CEPR Discussion Papers 1730, C.E.P.R. Discussion Papers.
  11. Alba, Joseph D. & Papell, David H., 2007. "Purchasing power parity and country characteristics: Evidence from panel data tests," Journal of Development Economics, Elsevier, vol. 83(1), pages 240-251, May.
  12. Yang-Cheng Ralph Lu & Tsangyao Chang & Kuei-Chiu Lee & Han-Wen Tzeng, 2011. "An empirical test of the purchasing power parity for transition economies: Panel SURADF tests," Applied Economics Letters, Taylor and Francis Journals, vol. 18(17), pages 1691-1696.
  13. Lothian, James R. & Taylor, Mark P., 2000. "Purchasing power parity over two centuries: strengthening the case for real exchange rate stability: A reply to Cuddington and Liang," Journal of International Money and Finance, Elsevier, vol. 19(5), pages 759-764, October.
  14. Mark Taylor, 2006. "Real exchange rates and Purchasing Power Parity: mean-reversion in economic thought," Applied Financial Economics, Taylor and Francis Journals, vol. 16(1-2), pages 1-17.
  15. Juan Carlos Cuestas, 2009. "Purchasing power parity in Central and Eastern European countries: an analysis of unit roots and nonlinearities," Applied Economics Letters, Taylor and Francis Journals, vol. 16(1), pages 87-94.
  16. Erdinç Telatar & Mübariz Hasanov, 2009. "Purchasing Power Parity in Central and East European Countries," Eastern European Economics, M.E. Sharpe, Inc., vol. 47(5), pages 25-41, September.
  17. Dimitrios Sideris, 2006. "Purchasing Power Parity in economies in transition: evidence from Central and East European countries," Applied Financial Economics, Taylor and Francis Journals, vol. 16(1-2), pages 135-143.
  18. Taylor, Mark P. & Peel, David A., 2000. "Nonlinear adjustment, long-run equilibrium and exchange rate fundamentals," Journal of International Money and Finance, Elsevier, vol. 19(1), pages 33-53, February.
  19. Ebru Guven Solakoglu, 2006. "Testing purchasing power parity hypothesis for transition economies," Applied Financial Economics, Taylor and Francis Journals, vol. 16(7), pages 561-568.
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