In: Ekonomický časopis/Journal of Economics, vol. 60, no. 1
Chi-Wei-su
Details:
Year, pages: 2012, 19 - 31
Keywords:
fourier stationary test, structural change, trend breaks, purchasing power parity
JEL Classification: C22, F31
Article type: Vedecký / Article
About article:
This study applies stationary test with a Fourier function proposed by Becker, Enders and Lee (2006) to test the validity of long-run purchasing power parity (PPP) to assess the non-stationary properties of the real exchange rate for seven Central and Eastern European (CEE) countries. We find that our approximation has higher power to detect U-shaped breaks and smooth breaks than linear method if the true data generating process of exchange rate is in fact a stationary non-liner process. We examine the validity of PPP from the non-linear point of view and provide robust evidence clearly indicate that PPP holds true for two countries, namely Bulgaria and Romania. Our findings point out their exchange rate adjustment is mean reversion towards PPP equilibrium values in a non-linear way.
This study applies stationary test with a Fourier function proposed by Becker, Enders and Lee (2006) to test the validity of long-run purchasing power parity (PPP) to assess the non-stationary properties of the real exchange rate for seven Central and Eastern European (CEE) countries. We find that our approximation has higher power to detect U-shaped breaks and smooth breaks than linear method if the true data generating process of exchange rate is in fact a stationary non-liner process. We examine the validity of PPP from the non-linear point of view and provide robust evidence clearly indicate that PPP holds true for two countries, namely Bulgaria and Romania. Our findings point out their exchange rate adjustment is mean reversion towards PPP equilibrium values in a non-linear way.
How to cite:
ISO 690:
Chi-Wei-su, . 2012. Flexible Fourier Stationary Test in Purchasing Power Parity for Central and Eastern European Countries. In Ekonomický časopis/Journal of Economics, vol. 60, no.1, pp. 19-31. 0013-3035.
APA:
Chi-Wei-su, . (2012). Flexible Fourier Stationary Test in Purchasing Power Parity for Central and Eastern European Countries. Ekonomický časopis/Journal of Economics, 60(1), 19-31. 0013-3035.