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Threshold cointegration and purchasing power parity in the pacific nations

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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.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/0003684042000233104

Affiliations: Department of Economics Finance, and Legal Studies The University of Alabama PO Box 870244 Tuscaloosa AL 35487-0224 USA

Publication date: May 1, 2004

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