Linear or Nonlinear Cointegration in the Purchasing Power Parity Relationship?

Alfred Haug and Syed A. Basher ()
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Syed A. Basher: Department of Economics, York University, Toronto

No 712, Working Papers from University of Otago, Department of Economics

Abstract: We test long-run PPP within a general model of cointegration of linear and nonlinear form. Nonlinear cointegration is tested with rank tests of Breitung (2001). We determine Þrst the order of integration of each variable, using monthly data from the post-Bretton Woods era for G-10 countries. In many cases prices are I(2), whereas all exchange rates are I(1). However, there are several countries that have a price level that linearly cointegrates with the US price level so that this combination is I(1). Overall, we find some, though limited, evidence for nonlinear and also linear cointegration in the PPP model.

Keywords: PPP; order of integration; nonlinear cointegration (search for similar items in EconPapers)
JEL-codes: C22 F31 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2007-08, Revised 2007-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Linear or nonlinear cointegration in the purchasing power parity relationship? (2011)
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