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Nonlinear mean-reversion to purchasing power parity: exponential smooth transition autoregressive models and stochastic unit root processes

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  • Gawon Yoon

Abstract

Nonlinear exponential smooth transition autoregressive (ESTAR) models are recently very popular in modelling the deviation from purchasing power parity. This article, shows that there is a close relation between the ESTAR models estimated in Taylor et al. (2001) and stochastic unit root (STUR) processes of Granger and Swanson (1997) and McCabe and Tremayne (1995). Also, for a post-Bretton Woods sample period, the real exchange rates from four major countries are tested if they are better described as I(1), ESTAR or STUR processes.

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  • Gawon Yoon, 2010. "Nonlinear mean-reversion to purchasing power parity: exponential smooth transition autoregressive models and stochastic unit root processes," Applied Economics, Taylor & Francis Journals, vol. 42(4), pages 489-496.
    • Handle: RePEc:taf:applec:v:42:y:2010:i:4:p:489-496
    DOI: 10.1080/00036840701604552
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