Nonlinear PPP Deviations: A Monte Carlo Investigation of Their Unconditional Half-Life
Recent research has generated support of the notion that the real exchange rate adjustment is nonlinear and that the PPP half-life is faster than the puzzling 3 to 5 years based on linear models. While different nonlinear models survive the specification tests against linear ones, there is little consensus on which specific threshold-type model outperforms the others in the family. In this paper, a Monte Carlo study is designed to address the issue and the findings support that the MR-LSTAR process is the most likely suspect that generates the puzzle.
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Volume (Year): 12 (2008)
Issue (Month): 4 (December)
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