Linear and Nonlinear Cointegration of Purchasing Power Parity: Further Evidence from Developing Countries
GLOBAL ECONOMIC REVIEW, vol.41, no.2, pp.147-162, 2012 (SSCI, Scopus)
- Publication Type: Article / Article
- Volume: 41 Issue: 2
- Publication Date: 2012
- Doi Number: 10.1080/1226508x.2012.684470
- Journal Name: GLOBAL ECONOMIC REVIEW
- Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
- Page Numbers: pp.147-162
- Keywords: Purchasing power parity, non-linear cointegration, non-linearities, rank tests, developing countries, UNIT-ROOT TESTS, EXCHANGE-RATE, RANK-TESTS, ADJUSTMENT, INTERVENTION, EAST
- Istanbul University Affiliated: Yes
Abstract
In this study, we search for evidence of empirical validity of long-run purchasing power parity (PPP) in case of eight developing countries. We consider both a linear and non-linear model of PPP based on cointegration analysis and apply firstly Johansen's linear approach and then conduct Breitung's rank and score tests to search for any non-linear cointegrating relationship. The results obtained from Breitung's rank test suggest that once the sources of non-linearities are taken into account, the results provide stronger evidence on the empirical fulfillment of PPP.