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Linear and Nonlinear Cointegration of Purchasing Power Parity: Further Evidence from Developing Countries

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  • Seref Bozoklu
  • Sinem Kutlu

Abstract

In this study, we search for evidence of empirical validity of long-run purchasing power parity (PPP) in case of eight developing countries. We consider both a linear and non-linear model of PPP based on cointegration analysis and apply firstly Johansen's linear approach and then conduct Breitung's rank and score tests to search for any non-linear cointegrating relationship. The results obtained from Breitung's rank test suggest that once the sources of non-linearities are taken into account, the results provide stronger evidence on the empirical fulfillment of PPP.

Suggested Citation

  • Seref Bozoklu & Sinem Kutlu, 2012. "Linear and Nonlinear Cointegration of Purchasing Power Parity: Further Evidence from Developing Countries," Global Economic Review, Taylor & Francis Journals, vol. 41(2), pages 147-162, June.
  • Handle: RePEc:taf:glecrv:v:41:y:2012:i:2:p:147-162
    DOI: 10.1080/1226508X.2012.684470
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    Cited by:

    1. Aviral Tiwari & Muhammad Shahbaz, 2014. "Revisiting Purchasing Power Parity for India using threshold cointegration and nonlinear unit root test," Economic Change and Restructuring, Springer, vol. 47(2), pages 117-133, May.
    2. repec:eei:journl:v:60:y:2017:i:2:p:14-38 is not listed on IDEAS
    3. Phiri, Andrew, 2014. "Purchasing power parity (PPP) between South Africa and her main currency exchange partners: Evidence from asymmetric unit root tests and threshold co-integration analysis," MPRA Paper 53659, University Library of Munich, Germany.
    4. Andrew Phiri, 2017. "Nonlinear adjustment effects in the purchasing power parity," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 60(2), pages 14-38.

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