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On the joint Fourier--ESTAR testing of PPP

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  • Fathali Firoozi
  • Donald Lien

Abstract

The purchasing power parity (PPP) is the hypothesis that the real exchange rate series are stationary. This study briefly reviews and applies six competing unit root test procedures to test PPP. Reflecting the existing literature, the results are mixed. The Kiliç test is the most favourable while the Kapetanios, Shin, and Snell (KSS) test is the least favourable to PPP and the standard ADF test lies in between. The same conclusion applies to the Fourier extensions of those three tests. The results support a recently suggested F -test for the significance of Fourier terms in unit root test equations.

Suggested Citation

  • Fathali Firoozi & Donald Lien, 2016. "On the joint Fourier--ESTAR testing of PPP," Applied Economics Letters, Taylor & Francis Journals, vol. 23(14), pages 979-983, September.
    • Handle: RePEc:taf:apeclt:v:23:y:2016:i:14:p:979-983
    DOI: 10.1080/13504851.2015.1125424
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    Cited by:

    1. David De Villiers & Andrew Phiri, 2022. "Towards resolving the purchasing power parity (PPP) ‘Puzzle’ in newly industrialized countries (NIC’s)," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 31(2), pages 161-180, February.

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