TY - JOUR
T1 - A Nonlinear View of Long-Run PPP Using Cross-Sectionally Dependent Heterogeneous Panels
AU - Chen, Yi Chi
AU - Lin, Chang Ching
AU - Sin, Chor Yiu
N1 - Funding Information:
∗The authors are Professor and Associate Professor of Department of Economics, National Cheng Kung University, and Professor of Department of Economics, National Tsing Hua University, respectively. Yi-Chi Chen, email: [email protected]. We are grateful to two anonymous referees, executive editor and seminar participants at Tamkang University and National Tsing Hua University. This research was partially supported by Ministry of Science and Technology of Taiwan under grants MOST103-2410-H-006-005, MOST104-2410-H-006-116 and MOST105-2410-H-007-010. The usual disclaimers apply.
Publisher Copyright:
© 2019 National Taiwan University. All rights reserved.
PY - 2019
Y1 - 2019
N2 - Empirical studies have flourished on long-run PPP using panel unit root tests, which supposedly have high power. In this paper, we adopt, in a panel data context, a nonlinear multiple-regime model, namely Threshold Autoregression (TAR), and perform a panel unit root test for each regime in the TAR. This new procedure takes advantage of two existing approaches: the inference for a TAR model with a unit root, and the panel unit root tests with the augmented panel Dickey-Fuller regression. The real exchange rate dynamics in a panel of 17 OECD countries over the recent floating exchange rate period are investigated. Three distinct regimes are identified. In particular, the support for long-run PPP is much stronger in the post-Maastricht-Treaty period than the period before; in the preMaastricht-Treaty period, there is some evidence for long-run PPP when the sterling-dollar appreciated, while the evidence is weak when the sterling-dollar depreciated. Our results are robust to expanding the data set to 2012, using the euro foreign exchange reference rates.
AB - Empirical studies have flourished on long-run PPP using panel unit root tests, which supposedly have high power. In this paper, we adopt, in a panel data context, a nonlinear multiple-regime model, namely Threshold Autoregression (TAR), and perform a panel unit root test for each regime in the TAR. This new procedure takes advantage of two existing approaches: the inference for a TAR model with a unit root, and the panel unit root tests with the augmented panel Dickey-Fuller regression. The real exchange rate dynamics in a panel of 17 OECD countries over the recent floating exchange rate period are investigated. Three distinct regimes are identified. In particular, the support for long-run PPP is much stronger in the post-Maastricht-Treaty period than the period before; in the preMaastricht-Treaty period, there is some evidence for long-run PPP when the sterling-dollar appreciated, while the evidence is weak when the sterling-dollar depreciated. Our results are robust to expanding the data set to 2012, using the euro foreign exchange reference rates.
UR - http://www.scopus.com/inward/record.url?scp=85091478281&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85091478281&partnerID=8YFLogxK
U2 - 10.6277/TER.201903_47(1).0001
DO - 10.6277/TER.201903_47(1).0001
M3 - Article
AN - SCOPUS:85091478281
SN - 1018-3833
VL - 47
SP - 1
EP - 40
JO - Taiwan Economic Review
JF - Taiwan Economic Review
IS - 1
ER -