The process followed by PPP data. On the properties of linearity tests

Authors: Paya, Ivan¹; Peel, David A.²

Source: Applied Economics, Volume 37, Number 21, Number 21/10 December 2005 , pp. 2515-2522(8)

Publisher: Routledge, part of the Taylor & Francis Group

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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

DOI: http://dx.doi.org/10.1080/00036840500390189

Affiliations: 1: Departmento Fundamentos Analisis Economico, University of Alicante, 03080, Alicante, Spain 2: Lancaster University Management School, Lancaster, LA1 4YX, UK

Publication date: 2005-12-10

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