Threshold cointegration and purchasing power parity in the pacific nations
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
Affiliations: Department of Economics Finance, and Legal Studies The University of Alabama PO Box 870244 Tuscaloosa AL 35487-0224 USA
Publication date: 2004-05-01