Purchasing power parity and the unit root tests: a robust analysis

Zhijie Xiao and Luiz Lima ()

No 552, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: Empirical evidence suggests that real exchange rate is characterized by the presence of near-unity and additive outliers. Recent studeis have found evidence on favor PPP reversion by using the quasi-differencing (Elliott et al., 1996) unit root tests (ERS), which is more efficient against local alternatives but is still based on least squares estimation. Unit root tests basead on least saquares method usually tend to bias inference towards stationarity when additive out liers are present. In this paper, we incorporate quasi-differencing into M-estimation to construct a unit root test that is robust not only against near-unity root but also against nonGaussian behavior provoked by assitive outliers. We re-visit the PPP hypothesis and found less evidemce in favor PPP reversion when non-Gaussian behavior in real exchange rates is taken into account.

Date: 2004-07-01
New Economics Papers: this item is included in nep-ets and nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://repositorio.fgv.br/bitstreams/0ad32caa-342 ... 361f93a0d45/download (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fgv:epgewp:552

Access Statistics for this paper

More papers in FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil) Contact information at EDIRC.
Bibliographic data for series maintained by Núcleo de Computação da FGV EPGE ().