Structural break, nonlinearity and asymmetry: a re-examination of PPP proposition

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Date

2018

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Routledge Journals, Taylor & Francis Ltd

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Abstract

In this study, we examine the validity of the PPP proposition for 28 European countries. For this purpose, we propose a new unit root test procedure that allows for both gradual structural breaks and asymmetric nonlinear adjustment towards the equilibrium level. Small-sample properties of the new tests are examined through Monte-Carlo simulations. The simulation results suggest that the new tests have satisfactory size and power properties. We then apply these new tests along with other unit root tests to examine stationarity properties of real exchange rate series of the sample countries. Our tests reject the null of unit root in more cases when compared to alternative tests. Overall, we find that the PPP proposition holds in majority of the European countries examined in this article.

Description

Emirmahmutoglu, Furkan/0000-0001-7358-3567; Hasanov, Mübariz/0000-0003-0216-9531; Hasanov, Mubariz/0000-0003-0216-9531

Keywords

Smooth break, nonlinear panel unit root, PPP, flexible Fourier form

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Citation

29

WoS Q

Q2

Scopus Q

Q2

Source

Volume

50

Issue

12

Start Page

1289

End Page

1308