Nikolaos Giannellis () (Department of Economics, University of Crete, Greece) Athanasios Papadopoulos () (Department of Economics, University of Crete, Greece)
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This paper sheds light on the importance of the validity of PPP hypothesis for the accessing process of the candidate countries towards EMU. The evidence of nonlinear adjustment in real exchange rates insists the estimation of a nonlinear SETAR model. While linear half-life estimates are biased upward (5 years on average), SETAR half-life estimates imply a faster reverting process (1.5 years on average). As a consequence, the evidence in favor of PPP hypothesis and the fast equilibrium adjustment of real exchange rates (setting Euro as the numeraire currency) imply that candidate countries follow a normal integration process towards EMU.
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Paper provided by University of Crete, Department of Economics in its series Working Papers with number
0718.
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