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

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Omay T., Emirmahmutoglu F., HASANOV M.

APPLIED ECONOMICS, cilt.50, sa.12, ss.1289-1308, 2018 (SSCI) identifier identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 50 Sayı: 12
  • Basım Tarihi: 2018
  • Doi Numarası: 10.1080/00036846.2017.1361005
  • Dergi Adı: APPLIED ECONOMICS
  • Derginin Tarandığı İndeksler: Social Sciences Citation Index (SSCI), Scopus
  • Sayfa Sayıları: ss.1289-1308
  • Anahtar Kelimeler: Smooth break, nonlinear panel unit root, PPP, flexible Fourier form, PURCHASING-POWER-PARITY, REAL EXCHANGE-RATES, UNIT-ROOT TESTS, TRANSITION AUTOREGRESSIVE MODELS, LONG-RUN, 2 CENTURIES, TREND-STATIONARITY, MEAN-REVERSION, STAR FRAMEWORK, SMOOTH BREAKS
  • Gazi Üniversitesi Adresli: Evet

Özet

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.