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Aysegul Corakcı, Furkan Emirmahmutoglu and Omay Tolga
''PPP hypothesis and temporary structural breaks''
( 2017, Vol. 37 No.3 )
In this study our aim is to explore a better testing strategy for the PPP hypothesis under a temporary structural break. For this purpose we use the exponential smooth transition (EST) function in the unit root testing framework and compare this methodology with the one that uses a Fourier function. Although the Fourier function is extensively used in the literature to test the validity of the PPP hypothesis under temporary breaks, this investigation shows that it leads to misleading results.
Keywords: PPP; Quasi PPP; Temporary smooth break; EST function.
JEL: F4 - Macroeconomic Aspects of International Trade and Finance: General
C1 - Econometric and Statistical Methods: General
Manuscript Received : Apr 29 2017 Manuscript Accepted : Jul 08 2017

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