The process followed by ppp data. on the properties of linearity tests

• Autores: David A. Peel, Iván Payá Sastre
• Localización: Working papers = Documentos de trabajo: Serie AD, Nº. 23, 2005
• Idioma: inglés
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• Resumen

  • Recent research has reported the lack of correct size in stationarity test for PPP deviations within a linear framework. However, theoretically well motivated nonlinear models, such as the ESTAR, appear to parsimoniously fit the PPP data and provide an explanation for the PPP ¿puzzle¿. Employing Monte Carlo experiments we analyze the size and power of the nonlinear tests against a variety of nonstationary hypotheses. We also fit the ESTAR model to data from high inflation economies. Our results provide further support for ESTAR specification.