Nonlinear mean-reversion to purchasing power parity: exponential smooth transition autoregressive models and stochastic unit root processes
Author: Yoon, Gawon
Source: Applied Economics, Volume 42, Number 4, February 2010 , pp. 489-496(8)
Abstract:Nonlinear exponential smooth transition autoregressive (ESTAR) models are recently very popular in modelling the deviation from purchasing power parity. This article, shows that there is a close relation between the ESTAR models estimated in Taylor et al. (2001) and stochastic unit root (STUR) processes of Granger and Swanson (1997) and McCabe and Tremayne (1995). Also, for a post-Bretton Woods sample period, the real exchange rates from four major countries are tested if they are better described as I(1), ESTAR or STUR processes.
Document Type: Research Article
Affiliations: School of Economics, Kookmin University, Seoul, S. Korea
Publication date: February 2010