Fourier nonlinear quantile unit root test and PPP in Africa

Mohsen Bahmani‐Oskooee, Tsangyao Chang, Farhang Niroomand and Omid Ranjbar ()
Authors registered in the RePEc Author Service: Mohsen Bahmani-Oskooee

Bulletin of Economic Research, 2020, vol. 72, issue 4, 451-481

Abstract: We test the PPP hypothesis in 29 African countries using a newly developed nonlinear Quantile unit root test with a Fourier function which accounts for smooth breaks. Simulation indicates that the proposed new test has higher power than the conventional Quantile unit root test as proposed by Koneker and Xiao (2004). Our empirical results provide support for the PPP hypothesis in 21 out of 29 African countries, a unique discovery using their real effective exchange rates. It appears that incorporating Fourier function to nonlinear Quantile unit root test gets us closer and closer to solving the PPP puzzle in Africa.

Date: 2020
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