Purchasing power parity with threshold effects for Central and Eastern European countries

摘要

This study applies nonlinear threshold unit-root test to assess the nonstationarity properties of the Real Exchange Rate (RER) for seven Central and Eastern European Countries (CEEC). We find that nonlinear threshold unit-root test has higher power than linear method suggested by Caner and Hansen (20014. Caner, M. and Hansen, B. 2001. Threshold autoregression with a unit root. Econometrica , 69: 1555-96. [CrossRef], [Web of Science ®]View all references) if the true data-generating process of exchange rate is in fact a stationary nonlinear process. We examine the validity of Purchasing Power Parity (PPP) from the nonlinear point of view and provide robust evidence that clearly indicates that PPP holds true for three countries, namely Slovakia, Romania and Bulgaria. Our findings point out their exchange rate adjustment mean-reverts towards PPP equilibrium values in a nonlinear way.View full textDownload full textKeywordsnonlinear threshold unit-root test, purchasing power parityJEL ClassificationC22, F31Related var addthis_config = { ui_cobrand: "Taylor & Francis Online", services_compact: "citeulike,netvibes,twitter,technorati,delicious,linkedin,facebook,stumbleupon,digg,google,more", pubid: "ra-4dff56cd6bb1830b" }; Add to shortlist Link Permalink http://dx.doi.org/10.1080/13504851.2011.564121