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Revisiting Purchasing Power Parity for Nine Transition Countries Using the Rank Test for Nonlinear Cointegration

  • Chang, Tsangyao

    ()

    (Department of Finance, Feng Chia University, Taichung, Taiwan)

  • Chiu, Chi Chen

    (Department of Banking and Finance, Tamkang University, Taipei, Taiwan)

  • Tzeng, Han Wen

    (Department of Finance, Overseas Chinese University, Taichung, Taiwan)

This study applies the powerful rank test for nonlinear cointegration proposed by Brietung (2001) to test the validity of long-run purchasing power parity (PPP) for nine transition countries from January 1995 to December 2008. The empirical results indicate that PPP holds true for all nine transition countries studied. Our results have important policy implications for these nine transition countries.

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Article provided by Institute for Economic Forecasting in its journal Romanian Journal for Economic Forecasting.

Volume (Year): (2011)
Issue (Month): 2 (June)
Pages: 19-30

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Handle: RePEc:rjr:romjef:v::y:2011:i:2:p:19-30
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  1. Kilian, Lutz & Taylor, Mark P, 2001. "Why is it so Difficult to Beat the Random Walk Forecast of Exchange Rates?," CEPR Discussion Papers 3024, C.E.P.R. Discussion Papers.
  2. Breitung, Jorg, 2001. "Rank Tests for Nonlinear Cointegration," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(3), pages 331-40, July.
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  15. Peel, David & Sarno, Lucio & Taylor, Mark P, 2001. "Nonlinear Mean-Reversion in Real Exchange Rates: Towards a Solution to the Purchasing Power Parity Puzzles," CEPR Discussion Papers 2658, C.E.P.R. Discussion Papers.
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  17. Lothian, James R. & Taylor, Mark P., 2000. "Purchasing power parity over two centuries: strengthening the case for real exchange rate stability: A reply to Cuddington and Liang," Journal of International Money and Finance, Elsevier, vol. 19(5), pages 759-764, October.
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