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Nonlinear Ardl Approach And Ppp: Evidence From 82 Countries

Author

Listed:
  • AUGUSTINE C. ARIZE

    (Texas A&M University-Commerce, College of Business, Department of Economics & Finance, Commerce, TX 75429, USA)

  • MOHSEN BAHMANI-OSKOOEE

    (#x2020;The Center for Research on International Economics, The University of Wisconsin-Milwaukee, Milwaukee, WI 53201, USA)

Abstract

Since the introduction of asymmetric cointegration and error-correction modeling, old theories have been getting a renewed attention, and purchasing power parity theory (PPP) is no exception. In this paper, we revisit the PPP by applying this relatively new technique. When we applied the symmetric cointegration test of Pesaran et al. [Pesaran, MH, Y Shin and RJ Smith (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326], we found cointegration between the nominal exchange rate and relative prices in 22 out of 82 countries. However, application of the asymmetric cointegration method of Shin et al. [Shin, Y, B Yu and M Greenwood-Nimmo (2014). Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In R. Sickels and W. Horrace (eds.), Festschrift in Honor of Peter Schmidt: Econometric Methods and Applications, pp. 281–314. New York: Springer] increased the number to 51 out of 82 countries. Nonlinear adjustment of relative prices was said to be the main contributing factor.

Suggested Citation

  • Augustine C. Arize & Mohsen Bahmani-Oskooee, 2021. "Nonlinear Ardl Approach And Ppp: Evidence From 82 Countries," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 21(01), pages 1-17, March.
    • Handle: RePEc:wsi:gejxxx:v:21:y:2021:i:01:n:s2194565921500020
    DOI: 10.1142/S2194565921500020
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