On the joint Fourier--ESTAR testing of PPP

Fathali Firoozi and Donald Lien

Applied Economics Letters, 2016, vol. 23, issue 14, 979-983

Abstract: The purchasing power parity (PPP) is the hypothesis that the real exchange rate series are stationary. This study briefly reviews and applies six competing unit root test procedures to test PPP. Reflecting the existing literature, the results are mixed. The Kiliç test is the most favourable while the Kapetanios, Shin, and Snell (KSS) test is the least favourable to PPP and the standard ADF test lies in between. The same conclusion applies to the Fourier extensions of those three tests. The results support a recently suggested F -test for the significance of Fourier terms in unit root test equations.

Date: 2016
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DOI: 10.1080/13504851.2015.1125424

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