Linear or nonlinear cointegration in the purchasing power parity relationship?
Year: 2009
Type: article
Abstract: We test long-run Purchasing Power Parity (PPP) within a general model of cointegration of linear and nonlinear form. Nonlinear cointegration is tested with rank tests of Breitung (2001 Breitung, J. 2001. Rank tests for nonlinear cointegration. Journal of Business and Economic Statistics, 19: 331–40. [Taylor & Francis Online], [Web of Science ®] , [Google Scholar]). We determine first the order of integration of each variable, using monthly data from the post-Bretton Woods era for G-10 countries. In many cases prices are I(2), whereas all exchange rates are I(1). However, there are several countries that have a price level that linearly cointegrates with the US price level so that this combination is I(1). Overall, we find some, though limited, evidence for nonlinear and also linear cointegration for the weak version of PPP.
Source: Applied Economics
Authors: Alfred A. Haug, Syed A. Basher
Institutions: University of Otago, Qatar Central Bank
Language: English
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2147381891