The process followed by PPP data. On the properties of linearity tests
Source: Applied Economics, Volume 37, Number 21, Number 21/10 December 2005 , pp. 2515-2522(8)
Abstract:Recent research has reported the lack of correct size in stationarity test for PPP deviations within a linear framework. However, theoretically well motivated non-linear models, such as the ESTAR, appear to parsimoniously fit the PPP data and provide an explanation for the PPP `puzzle'. Employing Monte Carlo experiments the size and power of the non-linear tests are analysed against a variety of nonstationary hypotheses. Aslo the ESTAR model is fitted to data from high inflation economies. The results provide further support for ESTAR specification.
Document Type: Research article
Publication date: 2005-12-10