Linear and Nonlinear Attractors in Purchasing Power Parity

Moosa, I and Ma, M 2018, 'Linear and Nonlinear Attractors in Purchasing Power Parity', Economia Inernazionale (International Economics), vol. 71, no. 2, pp. 149-172.


Document type: Journal Article
Collection: Journal Articles

Title Linear and Nonlinear Attractors in Purchasing Power Parity
Author(s) Moosa, I
Ma, M
Year 2018
Journal name Economia Inernazionale (International Economics)
Volume number 71
Issue number 2
Start page 149
End page 172
Total pages 24
Publisher Genoa Chamber of Commerce, Industry, Crafts and Agriculture
Abstract In an examination of the PPP hypothesis over the period 1973-2014 strong evidence is found for nonlinearity, not only in the adjustment process towards equilibrium but also in the long-run relation itself. Because of the use of a data sample with a long span we also found evidence for PPP, even if it is represented by a model with linear adjustment to a linear attractor, although adjustment towards long-run equilibrium is faster when a nonlinear attractor is used. Perhaps a controversial finding is that it may be always possible to find a nonlinear attractor in the form of a high order polynomial that produces stationary residuals, implying the validity of PPP.
Subject International Economics and International Finance
Keyword(s) Purchasing Power Parity
Nonlinearity
Error Correction
Non-Nested Model Selection Tests JEL Classification: C20
F31
F41
Copyright notice © 2018. Camera di Commercio di Genova
ISSN 0012-981X
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