The Purchasing Power Parity in The Maghreb Countries : A Nonlinear Perspective
AbstractThe main objective of this paper is to test the validity of the purchasing power parity in the Maghreb countries (namely, Algeria, Morocco and Tunisia). We apply the threshold autoregressive non-linear model (TAR) proposed by Caner and Hansen (2001). First, a review of literature on PPP is presented, analysing its empirical validity and the econometric techniques that have been applied. After that, and investigating for the joint hypothesis of nonlinearity and non-stationarity in the exchange rate behaviour, the TAR model is presented and used for the PPP in the Maghreb countries. The results indicate that the RER shows nonlinear behaviour. Moreover, The Moroccan Tunisian (DH/DT) bilateral exchange rate is found to be highly persistent and follows a random walk, whereas the two others(Algerian Moroccan and Algerian Tunisian bilateral real exchange rates) are characterised by partial unit roots. This implies that PPP holds in one threshold regime but not in the other.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 13853.
Date of creation: 2006
Date of revision: 2007
Purchasing Power Parity (PPP) - Real Exchange Rate (RER) Threshold Autoregressive Model (TAR) - Non-linearity- Maghreb countries;
Find related papers by JEL classification:
- F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
- F3 - International Economics - - International Finance
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