PPP hypothesis and temporary structural breaks

Corakci A., Emirmahmutoglu F., Tolga O.

ECONOMICS BULLETIN, cilt.37, sa.3, ss.1541-1548, 2017 (ESCI İndekslerine Giren Dergi) identifier identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 37 Konu: 3
  • Basım Tarihi: 2017
  • Sayfa Sayıları: ss.1541-1548


In this study our aim is to explore a better testing strategy for the PPP hypothesis under a temporary structural break. For this purpose we use the exponential smooth transition (EST) function in the unit root testing framework and compare this methodology with the one that uses a Fourier function. Although the Fourier function is extensively used in the literature to test the validity of the PPP hypothesis under temporary breaks, this investigation shows that it leads to misleading results.