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The Process Followed By Ppp Data. On The Properties Of Linearity Tests

  • Ivan Paya

    ()

    (Universidad de Alicante)

  • David A. Peel

    (University Management School)

Recent research has reported the lack of correct size in stationarity test for PPP deviations within a linear framework. However, theoretically well motivated nonlinear models, such as the ESTAR, appear to parsimoniously fit the PPP data and provide an explanation for the PPP ¿puzzle¿. Employing Monte Carlo experiments we analyze the size and power of the nonlinear tests against a variety of nonstationary hypotheses. We also fit the ESTAR model to data from high inflation economies. Our results provide further support for ESTAR specification.

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File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2005-23.pdf
File Function: Fisrt version / Primera version, 2005
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Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2005-23.

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Length: 14 pages
Date of creation: Jun 2005
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2005-23
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