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Nonlinear adjustment to purchasing power parity in Latin American countries: the ADL test for threshold cointegration

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  • Guochen Pan
  • Tsangyao Chang
  • D.P. Tang
  • Chia-Hao Lee

Abstract

This study applies a newly developed Autoregressive Distributed Lag (ADL) test for threshold cointegration proposed by Li and Lee (2010) to test the validity of long-run Purchasing Power Parity (PPP) for a sample of 15 Latin American countries from December 1994 to February 2010. Empirical results indicate that PPP holds true for most of the countries studied, with the exception of Brazil, Chile, Dominica, Haiti and Uruguay, and the long-run PPP adjustment process towards its equilibrium is asymmetric. Our results have important policy implications for these Latin American countries under study.

Suggested Citation

  • Guochen Pan & Tsangyao Chang & D.P. Tang & Chia-Hao Lee, 2012. "Nonlinear adjustment to purchasing power parity in Latin American countries: the ADL test for threshold cointegration," Applied Economics Letters, Taylor & Francis Journals, vol. 19(9), pages 857-862, June.
    • Handle: RePEc:taf:apeclt:v:19:y:2012:i:9:p:857-862
    DOI: 10.1080/13504851.2011.607113
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    Cited by:

    1. Burak Güriş & Yaşar Yaşgül, 2015. "Does the Fisher hypothesis hold for the G7 countries? Evidence from ADL threshold cointegration test," Quality & Quantity: International Journal of Methodology, Springer, vol. 49(6), pages 2549-2557, November.
    2. Selahattin GURIS & Burak GURIS & Turgut UN, 2016. "Interest Rates, Fisher Effect And Economic Development In Turkey, 1989-2011," Revista Galega de Economía, University of Santiago de Compostela. Faculty of Economics and Business., vol. 25(2), pages 95-100.
    3. Hiroshi Ono, 2014. "The government expenditure-economic growth relation in Japan: an analysis by using the ADL test for threshold cointegration," Applied Economics, Taylor & Francis Journals, vol. 46(28), pages 3523-3531, October.
    4. Hüseyin Şen & Ayşe Kaya & Savaş Kaptan & Metehan Cömert, 2019. "Interest rates, inflation, and exchange rates in fragile EMEs: A fresh look at the long-run interrelationships," Working Papers halshs-02095652, HAL.
    5. Aziza Syzdykova, 2018. "The Relationship between the Oil Price Shocks and the Stock Markets: The Example of Commonwealth of Independent States Countries," International Journal of Energy Economics and Policy, Econjournals, vol. 8(6), pages 161-166.
    6. Mehmet Fatih Tra? & Esra Ball? & Çiler Sigeze, 2016. "Testing for Purchasing Power Parity for Selected CIS Countries Using the Sieve Bootstrap," Proceedings of International Academic Conferences 3506095, International Institute of Social and Economic Sciences.

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