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Linear and Nonlinear Cointegration of Purchasing Power Parity: Further Evidence from Developing Countries

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  • Seref Bozoklu
  • Sinem Kutlu

Abstract

In this study, we search for evidence of empirical validity of long-run purchasing power parity (PPP) in case of eight developing countries. We consider both a linear and non-linear model of PPP based on cointegration analysis and apply firstly Johansen's linear approach and then conduct Breitung's rank and score tests to search for any non-linear cointegrating relationship. The results obtained from Breitung's rank test suggest that once the sources of non-linearities are taken into account, the results provide stronger evidence on the empirical fulfillment of PPP.

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File URL: http://hdl.handle.net/10.1080/1226508X.2012.684470
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Global Economic Review.

Volume (Year): 41 (2012)
Issue (Month): 2 (June)
Pages: 147-162

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Handle: RePEc:taf:glecrv:v:41:y:2012:i:2:p:147-162

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Cited by:
  1. Phiri, Andrew, 2014. "Purchasing power parity (PPP) between South Africa and her main currency exchange partners: Evidence from asymmetric unit root tests and threshold co-integration analysis," MPRA Paper 53659, University Library of Munich, Germany.

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