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Nonlinear PPP Deviations: A Monte Carlo Investigation of Their Unconditional Half-Life
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Ming Chien Lo
Published/Copyright:
December 16, 2008
Recent research has generated support of the notion that the real exchange rate adjustment is nonlinear and that the PPP half-life is faster than the puzzling 3 to 5 years based on linear models. While different nonlinear models survive the specification tests against linear ones, there is little consensus on which specific threshold-type model outperforms the others in the family. In this paper, a Monte Carlo study is designed to address the issue and the findings support that the MR-LSTAR process is the most likely suspect that generates the puzzle.
Published Online: 2008-12-16
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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Articles in the same Issue
- Article
- Wald Tests of I(1) against I(d) Alternatives: Some New Properties and an Extension to Processes with Trending Components
- The Nonlinear Dynamics of Foreign Reserves and Currency Crises
- The Consumption-Wealth Ratio under Asymmetric Adjustment
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- Nonlinear PPP Deviations: A Monte Carlo Investigation of Their Unconditional Half-Life
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