A note on testing for purchasing power parity

Florian Heinen

Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät

Abstract: We examine the asymptotic behavior of unit root tests against nonlinear alternatives of the exponential smooth transition type if the data is erroneously nonlinearly transformed. We show analytically and by a Monte Carlo study that the probability of rejecting the correct null of a random walk depends heavily on the type of data transformation.

Keywords: Unit roots; Misspecification; Nonlinear data transformation; Purchasing Power Parity (search for similar items in EconPapers)
JEL-codes: C12 C22 F31 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2011-05
New Economics Papers: this item is included in nep-ecm
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