Threshold cointegration and purchasing power parity in the pacific nations

Walter Enders · Kamol Chumrusphonlert

87 citations0/0 files storedApplied Economics

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Abstract

The paper uses a threshold cointegration methodology to explore the properties of long-run purchasing power parity (PPP) in the Pacific nations. Using Japan and the USA as base countries, it is shown that long-run PPP holds for most Asian countries but that the adjustment mechanism is asymmetric. In contrast to symmetric error-correction models, it is found that asymmetric adjustments of nominal exchange rates play an important role in eliminating deviations from long-run PPP.

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References

1987Co-Integration and Error Correction: Representation, Estimation, and Testing 1998The overvaluation of purchasing power parity 2001Cointegration and Threshold Adjustment 1998The behavior of real exchange rates during the post-Bretton Woods period 1997Transactions Costs and Nonlinear Adjustment in Real Exchange Rates; An Empirical Investigation 1997Searching for stationarity: Purchasing power parity under the current float 1988An empirical examination of long-run purchasing power parity using cointegration techniques 1996Are Real Exchange Rates Nonstationary? Evidence from a Panel-Data Test

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