Purchasing power parity nonlinear threshold unit root test for East-Asian countries

Tsangyao Chang · Chi‐Wei Su · Chia‐Hao Lee

13 citations0/0 files storedApplied Economics Letters

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Abstract

This study applies the Threshold Autoregressive (TAR) model proposed by Caner and Hansen (2001 Caner, M. and Hansen, B. 2001. Threshold autoregression with a unit root. Econometrica, 69: 1555–96. [Crossref], [Web of Science ®] , [Google Scholar]) to test the validity of long-run Purchasing Power Parity (PPP) of nine East-Asian countries over the period January 1986 to October 2009. The empirical results indicated that PPP holds true for more than half of these nine East-Asian countries under study, and the adjustment towards PPP is found to be nonlinear.

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References

1988Testing for a Unit Root in Time Series Regression 1992Testing the null hypothesis of stationarity against the alternative of a unit root 1989The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis 1993Tests for Parameter Instability and Structural Change With Unknown Change Point 1996The Purchasing Power Parity Puzzle 2003The Economics of Exchange Rates 2004The Purchasing Power Parity Debate 1998The behavior of real exchange rates during the post-Bretton Woods period

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