Testing the PPP in the non-linear STAR Framework: Evidence from Africa

Mohsen Bahmani‐Óskooee · Abera Gelan

47 citations0/0 files storedRePEc: Research Papers in Economics

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Abstract

Since its introduction in 2003, a new unit-root test that incorporates non-linearity in mean reverting process of a time series variable has gained momentum in testing the Purchasing Power Parity (PPP) theory. A few studies have applied the new test to the real bilateral exchange rates and have shown that it supports the PPP more often than the standard ADF test. In this paper we apply the new test as well as the standard ADF test not to real bilateral exchange rates but to real effective exchange rates of 21 African nations and show that indeed, the PPP is validated in 11 out of 21 African countries.

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References

1992Testing the null hypothesis of stationarity against the alternative of a unit root 2002Testing for a unit root in the nonlinear STAR framework 2001Nonlinear Mean‐Reversion in Real Exchange Rates: Toward a Solution To the Purchasing Power Parity Puzzles 1997Transactions Costs and Nonlinear Adjustment in Real Exchange Rates; An Empirical Investigation 2005Viewpoint: Towards a solution to the puzzles in exchange rate economics: where do we stand?2001Nonlinear adjustment to purchasing power parity in the post-Bretton Woods era 2003Nonlinear dynamics in deviations from the law of one price: a broad-based empirical study 2005Towards a solution to the puzzles in exchange rate economics: where do we stand?

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2013PURCHASING POWER PARITY IN AFRICAN COUNTRIES: FURTHER EVIDENCE FROM FOURIER UNIT ROOT TESTS BASED ON LINEAR AND NONLINEAR MODELS 2020Fourier nonlinear quantile unit root test and PPP in Africa 2016Quantile unit root test and PPP: evidence from 23 OECD countries 2009Towards solving the PPP puzzle: evidence from 113 countries 2008

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