Does Purchasing Power Parity hold? New Evidence from Wild-bootstrapped Nonlinear Unit Root Tests in the Presence of Heteroskedasticity
In spite of the extensive research which has already been undertaken, the issue as to whether Purchasing Power Parity (PPP) empirically holds, continues to be strongly debated. Existing studies have been criticized for their reliance on unit root tests which are deemed to suffer from certain weaknes...
| Main Authors: | , , |
|---|---|
| Format: | Journal Article |
| Published: |
Elsevier BV * North-Holland
2014
|
| Subjects: | |
| Online Access: | http://hdl.handle.net/20.500.11937/8426 |
| _version_ | 1848745655329095680 |
|---|---|
| author | Su, J. Cheung, Adrian Roca, E. |
| author_facet | Su, J. Cheung, Adrian Roca, E. |
| author_sort | Su, J. |
| building | Curtin Institutional Repository |
| collection | Online Access |
| description | In spite of the extensive research which has already been undertaken, the issue as to whether Purchasing Power Parity (PPP) empirically holds, continues to be strongly debated. Existing studies have been criticized for their reliance on unit root tests which are deemed to suffer from certain weaknesses such as the size distortion bias arising from heteroskedasticity. In this paper, we provide new evidence on PPP based on a new methodology that overcomes this problem. We use the widely accepted KSS (Kapetanios et al., 2003) non-linear unit root tests which we, however, wild bootstrapped. Through Monte Carlo simulation, we demonstrate that the wildbootstrapped KSS is robust to heteroskedasticity-induced size distortion problem. We apply this method to test PPP across 61 countries over the period 1994 to 2012 — a period characterized by a number of crises such as the Asian Financial Crisis, Russian Crisis, dotcom crisis, Global Financial Crises, among others, and therefore, intense heteroskedasticity. Our results provide strong evidence against PPP. This paper contributes to both the international financial economics and econometrics literatures. |
| first_indexed | 2025-11-14T06:20:48Z |
| format | Journal Article |
| id | curtin-20.500.11937-8426 |
| institution | Curtin University Malaysia |
| institution_category | Local University |
| last_indexed | 2025-11-14T06:20:48Z |
| publishDate | 2014 |
| publisher | Elsevier BV * North-Holland |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | curtin-20.500.11937-84262017-09-13T14:38:33Z Does Purchasing Power Parity hold? New Evidence from Wild-bootstrapped Nonlinear Unit Root Tests in the Presence of Heteroskedasticity Su, J. Cheung, Adrian Roca, E. Heteroskedasticity Purchasing power parity Wild bootstrapping (Nonlinear) unit root test In spite of the extensive research which has already been undertaken, the issue as to whether Purchasing Power Parity (PPP) empirically holds, continues to be strongly debated. Existing studies have been criticized for their reliance on unit root tests which are deemed to suffer from certain weaknesses such as the size distortion bias arising from heteroskedasticity. In this paper, we provide new evidence on PPP based on a new methodology that overcomes this problem. We use the widely accepted KSS (Kapetanios et al., 2003) non-linear unit root tests which we, however, wild bootstrapped. Through Monte Carlo simulation, we demonstrate that the wildbootstrapped KSS is robust to heteroskedasticity-induced size distortion problem. We apply this method to test PPP across 61 countries over the period 1994 to 2012 — a period characterized by a number of crises such as the Asian Financial Crisis, Russian Crisis, dotcom crisis, Global Financial Crises, among others, and therefore, intense heteroskedasticity. Our results provide strong evidence against PPP. This paper contributes to both the international financial economics and econometrics literatures. 2014 Journal Article http://hdl.handle.net/20.500.11937/8426 10.1016/j.econmod.2013.09.029 Elsevier BV * North-Holland fulltext |
| spellingShingle | Heteroskedasticity Purchasing power parity Wild bootstrapping (Nonlinear) unit root test Su, J. Cheung, Adrian Roca, E. Does Purchasing Power Parity hold? New Evidence from Wild-bootstrapped Nonlinear Unit Root Tests in the Presence of Heteroskedasticity |
| title | Does Purchasing Power Parity hold? New Evidence from Wild-bootstrapped Nonlinear Unit Root Tests in the Presence of Heteroskedasticity |
| title_full | Does Purchasing Power Parity hold? New Evidence from Wild-bootstrapped Nonlinear Unit Root Tests in the Presence of Heteroskedasticity |
| title_fullStr | Does Purchasing Power Parity hold? New Evidence from Wild-bootstrapped Nonlinear Unit Root Tests in the Presence of Heteroskedasticity |
| title_full_unstemmed | Does Purchasing Power Parity hold? New Evidence from Wild-bootstrapped Nonlinear Unit Root Tests in the Presence of Heteroskedasticity |
| title_short | Does Purchasing Power Parity hold? New Evidence from Wild-bootstrapped Nonlinear Unit Root Tests in the Presence of Heteroskedasticity |
| title_sort | does purchasing power parity hold? new evidence from wild-bootstrapped nonlinear unit root tests in the presence of heteroskedasticity |
| topic | Heteroskedasticity Purchasing power parity Wild bootstrapping (Nonlinear) unit root test |
| url | http://hdl.handle.net/20.500.11937/8426 |