Nonlinear mean-reversion to purchasing power parity: exponential smooth transition autoregressive models and stochastic unit root processes

Gawon Yoon

Applied Economics, 2010, vol. 42, issue 4, 489-496

Abstract: Nonlinear exponential smooth transition autoregressive (ESTAR) models are recently very popular in modelling the deviation from purchasing power parity. This article, shows that there is a close relation between the ESTAR models estimated in Taylor et al. (2001) and stochastic unit root (STUR) processes of Granger and Swanson (1997) and McCabe and Tremayne (1995). Also, for a post-Bretton Woods sample period, the real exchange rates from four major countries are tested if they are better described as I(1), ESTAR or STUR processes.

Date: 2010
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DOI: 10.1080/00036840701604552

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