NONLINEAR ADJUSTMENT TOWARDS PURCHASING POWER PARITY

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MORADI M.A.

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ISSN: 2588-4824

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Paper Information

Journal: Iranian Journal of Economic Research Year:2002 | Volume:4 | Issue:12 Page(s): 11-29

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Title

NONLINEAR ADJUSTMENT TOWARDS PURCHASING POWER PARITY

Author(s)

MORADI M.A. | Issue Writer Certificate

Keywords

PURCHASING POWER PARITY; COINTEGRATION; NONLINEARITY; STAR MODELS JEL CLASSIFICATION: F31; C22; C52

Abstract

The objective of this paper is to investigate the dynamics of adjustment to long-run purchasing power parity (PPP)in a nonlinear framework using the Iranian data over the period 1959-2000. Two PPP measures are considered and nonlinearity in the real exchange rates are investigated. First, the standard and modified unit root tests are applied and then, cointegration analysis is carried out, based on the Johansen (1988) and Johansen and Juselius (1990) cointegration methodology, rather than imposing the strict cointegating vector in calculating real exchange rate measures. Furthermore, the Smooth transition autoregressive (STAR) representation for the adjustment process towards PPP, which provides a superior alternative, are specified and estimated. It was found that purchasing power parity (PPP) holds in the long-run after accounting for structural breaks. Moreover, linearity was strongly rejected and the dynamic STAR models were specified and estimated by using nonlinear least squares. The strong evidence in favour of nonlinear behaviour for PPP suggests that the linear models are misspecified.

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APA: Copy

MORADI, M.A.. (2002). NONLINEAR ADJUSTMENT TOWARDS PURCHASING POWER PARITY. IRANIAN ECONOMIC RESEARCH, 4(12), 11-29. SID. https://sid.ir/paper/532208/en

Vancouver: Copy

MORADI M.A.. NONLINEAR ADJUSTMENT TOWARDS PURCHASING POWER PARITY. IRANIAN ECONOMIC RESEARCH[Internet]. 2002;4(12):11-29. Available from: https://sid.ir/paper/532208/en

IEEE: Copy

M.A. MORADI, “NONLINEAR ADJUSTMENT TOWARDS PURCHASING POWER PARITY,” IRANIAN ECONOMIC RESEARCH, vol. 4, no. 12, pp. 11–29, 2002, [Online]. Available: https://sid.ir/paper/532208/en

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