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Threshold cointegration and purchasing power parity in the pacific nations

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  • Walter Enders
  • Kamol Chumrusphonlert

Abstract

The paper uses a threshold cointegration methodology to explore the properties of long-run purchasing power parity (PPP) in the Pacific nations. Using Japan and the USA as base countries, it is shown that long-run PPP holds for most Asian countries but that the adjustment mechanism is asymmetric. In contrast to symmetric error-correction models, it is found that asymmetric adjustments of nominal exchange rates play an important role in eliminating deviations from long-run PPP.

Suggested Citation

  • Walter Enders & Kamol Chumrusphonlert, 2004. "Threshold cointegration and purchasing power parity in the pacific nations," Applied Economics, Taylor & Francis Journals, vol. 36(9), pages 889-896.
    • Handle: RePEc:taf:applec:v:36:y:2004:i:9:p:889-896
    DOI: 10.1080/0003684042000233104
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    References listed on IDEAS

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