This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Unit Roots, Nonlinear Cointegration and Purchasing Power Parity

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Alfred A. Haug () (Department of Economics, York University)
Syed A. Basher () (Department of Economics, York University)

Additional information is available for the following registered author(s):

Abstract

We test long¨Crun PPP within a general model of cointegration of linear and nonlinear form. Nonlinear cointegration is tested with rank tests proposed by Breitung (2001). We start with determining the order of integration of each variable in the model, applying relatively powerful DF¨CGLS tests of Elliott, Rothenberg and Stock (1996). Using monthly data from the post¨CBretton Woods era for G¨C10 countries, the evidence leads to a rejection of PPP for almost all countries. In several cases the price variables are driven by permanent shocks that differ from the ones that drive the exchange rate. Also, nonlinear cointegration cannot solve the PPP puzzle.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://dept.econ.yorku.ca/research/workingPapers/working_papers/2003/Haug_Basher_06_2005.pdf
File Format:
File Function: First version, 2003
Download Restriction: no

Publisher Info
Paper provided by York University, Department of Economics in its series Working Papers with number 2003_1.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 18 pages
Date of creation: Jan 2003
Date of revision: Jun 2005
Handle: RePEc:yca:wpaper:2003_1

Contact details of provider:
Postal: 4700 Keele Street, Toronto, Ontario, M3J 1P3
Phone: (416) 736-5083
Fax: (416) 736-5987
Web page: http://dept.econ.yorku.ca/
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Support).

Related research
Keywords: Purchasing power parity; unit roots; nonlinear cointegration;

Other versions of this item:

Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Obstfeld, Maurice & Taylor, Alan M, 1997. "Nonlinear Aspects of Goods-Market Arbitrage and Adjustment: Heckscher's Commodity Points Revisited," CEPR Discussion Papers 1672, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. repec:cup:macdyn:v:5:y:2001:i:4:p:533-76 is not listed on IDEAS
  3. MacKinnon, James G & Haug, Alfred A & Michelis, Leo, 1999. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 563-77, Sept.-Oct. [Downloadable!]
    Other versions:
  4. Sercu, Piet & Uppal, Raman & Van Hulle, Cynthia, 1995. " The Exchange Rate in the Presence of Transaction Costs: Implications for Tests of Purchasing Power Parity," Journal of Finance, American Finance Association, vol. 50(4), pages 1309-19, September. [Downloadable!] (restricted)
  5. Michael, Panos & Nobay, A Robert & Peel, David A, 1997. "Transactions Costs and Nonlinear Adjustment in Real Exchange Rates: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 862-79, August.
  6. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March. [Downloadable!] (restricted)
  7. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July. [Downloadable!] (restricted)
    Other versions:
  8. Breitung, Jorg, 2001. "Rank Tests for Nonlinear Cointegration," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(3), pages 331-40, July.
  9. Huizinga, John, 1987. "An empirical investigation of the long-run behavior of real exchange rates," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 27(1), pages 149-214, January. [Downloadable!] (restricted)
  10. Kremers, Jeroen J M & Ericsson, Neil R & Dolado, Juan J, 1992. "The Power of Cointegration Tests," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 325-48, August.
    Other versions:
  11. Allan W. Gregory & Alfred A. Haug & Nicoletta Lomuto, 2004. "Mixed signals among tests for cointegration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(1), pages 89-98. [Downloadable!]
  12. Lo, Ming Chien & Zivot, Eric, 2001. "Threshold Cointegration And Nonlinear Adjustment To The Law Of One Price," Macroeconomic Dynamics, Cambridge University Press, vol. 5(04), pages 533-576, September. [Downloadable!]
  13. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules And Macroeconomic Stability: Evidence And Some Theory," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 147-180, February. [Downloadable!] (restricted)
    Other versions:
  14. Haug, Alfred A., 2002. "Testing Linear Restrictions On Cointegrating Vectors: Sizes And Powers Of Wald And Likelihood Ratio Tests In Finite Samples," Econometric Theory, Cambridge University Press, vol. 18(02), pages 505-524, April. [Downloadable!]
  15. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November. [Downloadable!] (restricted)
  16. Christopher Sims & Tao Zha, 2002. "Macroeconomic switching," Proceedings, Federal Reserve Bank of San Francisco, issue Mar. [Downloadable!]
  17. Dumas, Bernard, 1992. "Dynamic Equilibrium and the Real Exchange Rate in a Spatially Separated World," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 5(2), pages 153-80. [Downloadable!] (restricted)
  18. Cheung, Yin-Wong & Lai, Kon S, 1993. "A Fractional Cointegration Analysis of Purchasing Power Parity," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(1), pages 103-12, January.
  19. Ray C. Fair, 2001. "Actual Federal Reserve policy behavior and interest rate rules," Economic Policy Review, Federal Reserve Bank of New York, issue Mar, pages 61-72. [Downloadable!]
  20. Clive Granger & Jeff Hallman, 1990. "Long Memory Series with Attractors," University of California at San Diego, Economics Working Paper Series 90-9, Department of Economics, UC San Diego.
    Other versions:
  21. MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-18, Nov.-Dec.. [Downloadable!] (restricted)
    Other versions:
  22. Peter Pedroni, 2001. "Purchasing Power Parity Tests In Cointegrated Panels," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 727-731, November. [Downloadable!] (restricted)
  23. Mark, Nelson C., 1990. "Real and nominal exchange rates in the long run: An empirical investigation," Journal of International Economics, Elsevier, vol. 28(1-2), pages 115-136, February. [Downloadable!] (restricted)
  24. Lothian, James R & Taylor, Mark P, 1996. "Real Exchange Rate Behavior: The Recent Float from the Perspective of the Past Two Centuries," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 488-509, June. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Derek Bond & Michael J. Harrison & Edward J. O'Brien, 2006. "Purchasing Power Parity: The Irish Experience Re-visited," Trinity Economics Papers tep200615, Trinity College Dublin, Department of Economics. [Downloadable!]
Statistics
Access and download statistics

Did you know? A few items listed on IDEAS are over 2000 years old!

This page was last updated on 2009-12-20.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.