Liew, Venus Khim-Sen (2003) The Validity of PPP Revisited: An Application of Non-linear Unit Root Test. Munich Personal RePEc Archive. pp. 1-11. ISSN 2285-6803
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Abstract
To this end, the validity of purchasing power parity (PPP) remains a controversial issue, as empirical evidence is inconclusive. This study provides robust empirical evidence to support the view that negligence of non-linearity may be the culprit of these contrasting findings. This paper demonstrates that the non-linear unit root test proposed by Kapetanois et al. [Journal of Econometrics, 2003, 112, pp.359-379] is able to reject unit root in 4 out of 5 cases, implying that deviations of exchange rates is mean reverting towards the PPP equilibrium values from the non-linear perspective, whereas the augmented Dickey-Fuller (ADF) test fails in 4 out of 5 cases. Thus, previous conclusions of the invalidity of PPP may be due to misleading results from the ADF test, which has low power against non-linearity.
| Item Type: | Article |
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| Uncontrolled Keywords: | Purchasing power parity; Mean reversion; ASEAN economies; Real exchange rates; Non-linear unit root, unimas, university, universiti, Borneo, Malaysia, Sarawak, Kuching, Samarahan, ipta, education, research, Universiti Malaysia Sarawak |
| Subjects: | H Social Sciences > HB Economic Theory |
| Divisions: | Academic Faculties, Institutes and Centres > Faculty of Economics and Business Faculties, Institutes, Centres > Faculty of Economics and Business |
| Depositing User: | Ab Rahim |
| Date Deposited: | 27 Nov 2017 06:10 |
| Last Modified: | 27 Nov 2017 06:10 |
| URI: | http://ir.unimas.my/id/eprint/18599 |
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