Linear and Nonlinear Cointegration of Purchasing Power Parity: Further Evidence from Developing Countries

Şeref Bozoklu and Sinem Kutlu

Global Economic Review, 2012, vol. 41, issue 2, 147-162

Abstract: In this study, we search for evidence of empirical validity of long-run purchasing power parity (PPP) in case of eight developing countries. We consider both a linear and non-linear model of PPP based on cointegration analysis and apply firstly Johansen's linear approach and then conduct Breitung's rank and score tests to search for any non-linear cointegrating relationship. The results obtained from Breitung's rank test suggest that once the sources of non-linearities are taken into account, the results provide stronger evidence on the empirical fulfillment of PPP.

Date: 2012
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DOI: 10.1080/1226508X.2012.684470

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