A note on testing for purchasing power parity
AbstractWe examine the asymptotic behavior of unit root tests against nonlinear alternatives of the exponential smooth transition type if the data is erroneously nonlinearly transformed. We show analytically and by a Monte Carlo study that the probability of rejecting the correct null of a random walk depends heavily on the type of data transformation.
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Bibliographic InfoPaper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Hannover Economic Papers (HEP) with number dp-471.
Length: 17 pages
Date of creation: May 2011
Date of revision:
Unit roots; Misspecification; Nonlinear data transformation; Purchasing Power Parity;
Find related papers by JEL classification:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- F31 - International Economics - - International Finance - - - Foreign Exchange
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- de Jong, Robert M. & Schmidt, Peter, 2002. "Spurious logarithms and the KPSS statistic," Economics Letters, Elsevier, vol. 76(3), pages 383-391, August.
- de Jong, Robert M., 2004. "Addendum To," Econometric Theory, Cambridge University Press, vol. 20(03), pages 627-635, June.
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