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Temporal aggregation of an ESTAR process: some implications for purchasing power parity adjustment

  • David A. Peel

    (Lancaster University Management School, Lancaster LA1 4YX, UK)

  • Ivan Paya

    (Departamento Fundamento Analisis Economico, University of Alicante, 03080 Alicante, Spain)

Nonlinear models of deviations from PPP have recently provided an important, theoretically well motivated, contribution to the PPP puzzle. Most of these studies use temporally aggregated data to empirically estimate the nonlinear models. As noted by Taylor (2001), if the true DGP is nonlinear, the temporally aggregated data could exhibit misleading properties regarding the adjustment speeds. We examine the effects of different levels of temporal aggregation on estimates of ESTAR models of real exchange rates. Copyright © 2006 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.860
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File URL: http://qed.econ.queensu.ca:80/jae/2006-v21.5/
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 21 (2006)
Issue (Month): 5 ()
Pages: 655-668

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Handle: RePEc:jae:japmet:v:21:y:2006:i:5:p:655-668
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