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Purchasing power parity in OECD countries: Nonlinear unit root tests revisited

  • Cuestas, Juan Carlos
  • Regis, Paulo José

The aim of this paper is to provide additional evidence on the purchasing power parity empirical fulfilment in a pool of OECD countries. We apply the Harvey et al. (2008) linearity test and the Kruse (2011) nonlinear unit root test. The results point to the fact that the purchasing power parity theory holds in a greater number of countries than has been reported in previous studies.

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Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 32 (2013)
Issue (Month): C ()
Pages: 343-346

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Handle: RePEc:eee:ecmode:v:32:y:2013:i:c:p:343-346
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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  1. Maurice Obstfeld & Kenneth Rogoff, 1994. "Exchange Rate Dynamics Redux," NBER Working Papers 4693, National Bureau of Economic Research, Inc.
  2. Guglielmo Maria Caporale & Luis A. Gil-Alana, 2007. "Nonlinearities and Fractional Integration in the US Unemployment Rate," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(4), pages 521-544, 08.
  3. Hakkio, Craig S., 1984. "A re-examination of purchasing power parity : A multi-country and multi-period study," Journal of International Economics, Elsevier, vol. 17(3-4), pages 265-277, November.
  4. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
  5. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
  6. Kenneth A. Froot & Kenneth Rogoff, 1994. "Perspectives on PPP and Long-Run Real Exchange Rates," NBER Working Papers 4952, National Bureau of Economic Research, Inc.
  7. Harvey David I & Leybourne Stephen J & Xiao Bin, 2008. "A Powerful Test for Linearity When the Order of Integration is Unknown," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 12(3), pages 1-24, September.
  8. Juan Carlos Cuestas & Estefania Mourelle, 2011. "Nonlinearities in real exchange rate determination: do African exchange rates follow a random walk?," Applied Economics, Taylor & Francis Journals, vol. 43(2), pages 243-258.
  9. Kruse, Robinson, 2008. "A new unit root test against ESTAR based on a class of modified statistics," Hannover Economic Papers (HEP) dp-398, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  10. Juan Carlos Cuestas & Luís A. Gil-Alana, 2009. "Further evidence on the PPP analysis of the Australian dollar: non-linearities, fractional integration and structural changes," Working Papers 2009/3, Nottingham Trent University, Nottingham Business School, Economics Division.
  11. David I. Harvey & Stephen J. Leybourne, 2007. "Testing for time series linearity," Econometrics Journal, Royal Economic Society, vol. 10(1), pages 149-165, 03.
  12. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
  13. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2003. "Testing for a unit root in the nonlinear STAR framework," Journal of Econometrics, Elsevier, vol. 112(2), pages 359-379, February.
  14. Juan Carlos Cuestas & Luis A. Gil-Alana, 2012. "A Non-Linear Approach with Long Range Dependence Based on Chebyshev Polynomials," Working Papers 2012013, The University of Sheffield, Department of Economics.
  15. Bahmani-Oskooee, Mohsen & Kutan, Ali M. & Zhou, Su, 2007. "Testing PPP in the non-linear STAR framework," Economics Letters, Elsevier, vol. 94(1), pages 104-110, January.
  16. K Abadir & W Distaso, . "Testing joint hypotheses when one of the alternatives is one-sided," Discussion Papers 05/13, Department of Economics, University of York.
  17. Rapach, David E. & Wohar, Mark E., 2006. "The out-of-sample forecasting performance of nonlinear models of real exchange rate behavior," International Journal of Forecasting, Elsevier, vol. 22(2), pages 341-361.
  18. 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.
  19. Rudiger Dornbusch, 1980. "Exchange Rate Economics: Where Do We Stand?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(1, Tenth ), pages 143-206.
  20. Paul Cashin & C. John McDermott, 2003. "An Unbiased Appraisal of Purchasing Power Parity," IMF Staff Papers, Palgrave Macmillan, vol. 50(3), pages 1.
  21. Abuaf, Niso & Jorion, Philippe, 1990. " Purchasing Power Parity in the Long Run," Journal of Finance, American Finance Association, vol. 45(1), pages 157-74, March.
  22. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I.
  23. Taylor, Mark P & Peel, David A & Sarno, Lucio, 2001. "Nonlinear Mean-Reversion in Real Exchange Rates: Toward a Solution to the Purchasing Power Parity Puzzles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1015-42, November.
  24. Corbae, Dean & Ouliaris, Sam, 1991. "A Test of Long-Run Purchasing Power Parity Allowing for Structural Breaks," The Economic Record, The Economic Society of Australia, vol. 67(196), pages 26-33, March.
  25. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April.
  26. Juan Carlos Cuestas & Paulo José Regis, 2008. "Testing for PPP in Australia: Evidence from unit root test against nonlinear trend stationarity alternatives," Economics Bulletin, AccessEcon, vol. 3(27), pages 1-8.
  27. repec:ebl:ecbull:v:3:y:2008:i:27:p:1-8 is not listed on IDEAS
  28. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
  29. Taylor, Mark P. & Peel, David A., 2000. "Nonlinear adjustment, long-run equilibrium and exchange rate fundamentals," Journal of International Money and Finance, Elsevier, vol. 19(1), pages 33-53, February.
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