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Evidence on purchasing power parity from univariate models: the case of smooth transition trend-stationarity

Sollis, R.

Authors

R. Sollis



Abstract

Recent research has found that trend-break unit root tests derived from univariate linear models do not support the hypothesis of long-run purchasing power parity (PPP) for US dollar real exchange rates. In this paper univariate smooth transition models are utilized to develop unit root tests that allow under the alternative hypothesis for stationarity around a gradually changing deterministic trend function. These tests reveal statistically significant evidence against the null hypothesis of a unit root for the real exchange rates of a number of countries against the US dollar. However, restrictions consistent with long-run PPP are rejected for some of the countries for which a rejection of the unit root hypothesis is obtained.

Citation

Sollis, R. (2005). Evidence on purchasing power parity from univariate models: the case of smooth transition trend-stationarity. Journal of Applied Econometrics, 20(1), 79-98. https://doi.org/10.1002/jae.772

Journal Article Type Article
Online Publication Date Feb 3, 2005
Publication Date Feb 3, 2005
Deposit Date Feb 19, 2008
Journal Journal of Applied Econometrics
Print ISSN 0883-7252
Electronic ISSN 1099-1255
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 20
Issue 1
Pages 79-98
DOI https://doi.org/10.1002/jae.772
Keywords Real exchange-rates, Nonlinear mean-reversion, Tests.
Public URL https://durham-repository.worktribe.com/output/1624757