Temporal aggregation of an ESTAR process: some implications for purchasing power parity adjustment

Iván Payá · David Alan Peel

21 citations0/0 files storedJournal of Applied Econometrics

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Abstract

Abstract Nonlinear models of deviations from PPP have recently provided an important, theoretically well motivated, contribution to the PPP puzzle. Most of these studies use temporally aggregated data to empirically estimate the nonlinear models. As noted by Taylor ( 2001 ), if the true DGP is nonlinear, the temporally aggregated data could exhibit misleading properties regarding the adjustment speeds. We examine the effects of different levels of temporal aggregation on estimates of ESTAR models of real exchange rates. Copyright © 2006 John Wiley & Sons, Ltd.

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References

1996Impulse response analysis in nonlinear multivariate models 1996The Purchasing Power Parity Puzzle 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 1996Real Exchange Rate Behavior: The Recent Float from the Perspective of the Past Two Centuries 2003Why is it so difficult to beat the random walk forecast of exchange rates?1997Transactions Costs and Nonlinear Adjustment in Real Exchange Rates; An Empirical Investigation 1992Dynamic Equilibrium and the Real Exchange Rate in a Spatially Separated World

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2011Real exchange rates and time-varying trade costs 2008A fractionally integrated exponential STAR model applied to the US real effective exchange rate

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