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The Process Followed By Ppp Data. On The Properties Of Linearity Tests

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  • Ivan Paya

    ()
    (Universidad de Alicante)

  • David A. Peel

    (University Management School)

Abstract

Recent research has reported the lack of correct size in stationarity test for PPP deviations within a linear framework. However, theoretically well motivated nonlinear models, such as the ESTAR, appear to parsimoniously fit the PPP data and provide an explanation for the PPP ¿puzzle¿. Employing Monte Carlo experiments we analyze the size and power of the nonlinear tests against a variety of nonstationary hypotheses. We also fit the ESTAR model to data from high inflation economies. Our results provide further support for ESTAR specification.

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Bibliographic Info

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2005-23.

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Length: 14 pages
Date of creation: Jun 2005
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2005-23

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Keywords: ESTAR; Real Exchange Rate; Size; Linearity Test.;

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References

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Citations

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Cited by:
  1. Sanusi, Aliyu Rafindadi, 2010. "Exchange rate pass-through to consumer prices in Ghana: Evidence from structural vector auto-regression," MPRA Paper 29491, University Library of Munich, Germany.
  2. Yoon, Gawon, 2010. "Do real exchange rates really follow threshold autoregressive or exponential smooth transition autoregressive models?," Economic Modelling, Elsevier, vol. 27(2), pages 605-612, March.
  3. Mohsen Bahmani-Oskooee & Ali Kutan & Su Zhou, 2009. "Towards solving the PPP puzzle: evidence from 113 countries," Applied Economics, Taylor & Francis Journals, vol. 41(24), pages 3057-3066.

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