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PPP hypothesis and temporary structural breaks

Author

Listed:
  • Aysegul Corakcı

    (Cankaya Univeristy Department of Economics)

  • Furkan Emirmahmutoglu

    (Gazi University Department of Econometrics)

  • Omay Tolga

    (Türk Hava Kurumu University (THK) Department of Management)

Abstract

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.

Suggested Citation

  • Aysegul Corakcı & Furkan Emirmahmutoglu & Omay Tolga, 2017. "PPP hypothesis and temporary structural breaks," Economics Bulletin, AccessEcon, vol. 37(3), pages 1541-1548.
    • Handle: RePEc:ebl:ecbull:eb-17-00335
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2017/Volume37/EB-17-V37-I3-P139.pdf
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    References listed on IDEAS

    as
    1. Tolga Omay & Furkan Emirmahmutoglu & Mubariz Hasanov, 2018. "Structural break, nonlinearity and asymmetry: a re-examination of PPP proposition," Applied Economics, Taylor & Francis Journals, vol. 50(12), pages 1289-1308, March.
    2. Miguel Carvalho & Paulo Júlio, 2012. "Digging out the PPP hypothesis: an integrated empirical coverage," Empirical Economics, Springer, vol. 42(3), pages 713-744, June.
    3. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
    4. Christopoulos, Dimitris K. & León-Ledesma, Miguel A., 2010. "Smooth breaks and non-linear mean reversion: Post-Bretton Woods real exchange rates," Journal of International Money and Finance, Elsevier, vol. 29(6), pages 1076-1093, October.
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    Cited by:

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    More about this item

    Keywords

    PPP; Quasi PPP; Temporary smooth break; EST function.;
    All these keywords.

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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