A note on testing for purchasing power parity
We examine the asymptotic behavior of unit root tests against nonlinear alternatives of the exponential smooth transition type if the data is erroneously nonlinearly transformed. We show analytically and by a Monte Carlo study that the probability of rejecting the correct null of a random walk depends heavily on the type of data transformation.
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- de Jong, Robert M. & Schmidt, Peter, 2002. "Spurious logarithms and the KPSS statistic," Economics Letters, Elsevier, vol. 76(3), pages 383-391, August.
- de Jong, Robert M., 2004. "Addendum To," Econometric Theory, Cambridge University Press, vol. 20(03), pages 627-635, June.
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