The Validity of PPP Revisited: An Application of Non-linear Unit Root Test
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 demonstrate...
| Main Author: | |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Munich University Library
2003
|
| Subjects: | |
| Online Access: | http://ir.unimas.my/id/eprint/18599/ http://ir.unimas.my/id/eprint/18599/7/The%20Validity%20of%20PPP%20Revisited%20%28abstract%29.pdf |
| _version_ | 1848838546746507264 |
|---|---|
| author | Liew, Venus Khim-Sen |
| author_facet | Liew, Venus Khim-Sen |
| author_sort | Liew, Venus Khim-Sen |
| building | UNIMAS Institutional Repository |
| collection | Online Access |
| description | 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. |
| first_indexed | 2025-11-15T06:57:17Z |
| format | Article |
| id | unimas-18599 |
| institution | Universiti Malaysia Sarawak |
| institution_category | Local University |
| language | English |
| last_indexed | 2025-11-15T06:57:17Z |
| publishDate | 2003 |
| publisher | Munich University Library |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | unimas-185992017-11-27T06:10:59Z http://ir.unimas.my/id/eprint/18599/ The Validity of PPP Revisited: An Application of Non-linear Unit Root Test Liew, Venus Khim-Sen HB Economic Theory 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. Munich University Library 2003 Article PeerReviewed text en http://ir.unimas.my/id/eprint/18599/7/The%20Validity%20of%20PPP%20Revisited%20%28abstract%29.pdf 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 https://econpapers.repec.org/paper/wpawuwpif/0308001.htm |
| spellingShingle | HB Economic Theory Liew, Venus Khim-Sen The Validity of PPP Revisited: An Application of Non-linear Unit Root Test |
| title | The Validity of PPP Revisited: An Application of Non-linear Unit Root Test |
| title_full | The Validity of PPP Revisited: An Application of Non-linear Unit Root Test |
| title_fullStr | The Validity of PPP Revisited: An Application of Non-linear Unit Root Test |
| title_full_unstemmed | The Validity of PPP Revisited: An Application of Non-linear Unit Root Test |
| title_short | The Validity of PPP Revisited: An Application of Non-linear Unit Root Test |
| title_sort | validity of ppp revisited: an application of non-linear unit root test |
| topic | HB Economic Theory |
| url | http://ir.unimas.my/id/eprint/18599/ http://ir.unimas.my/id/eprint/18599/ http://ir.unimas.my/id/eprint/18599/7/The%20Validity%20of%20PPP%20Revisited%20%28abstract%29.pdf |