A note on testing for purchasing power parity

We examine the asymptotic behavior of unit root tests against nonlinear alternatives of the exponential smooth transition type if the data is erroneously nonlinearly transformed. We show analytically and by a Monte Carlo study that the probability of rejecting the correct null of a random walk depends heavily on the type of data transformation.

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Year of publication:	2011-05
Authors:	Heinen, Florian
Institutions:	Wirtschaftswissenschaftliche Fakultät, Leibniz Universität Hannover
Subject:	Unit roots \| Misspecification \| Nonlinear data transformation \| Purchasing Power Parity

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Extent:	application/pdf
Series:	Hannover Economic Papers (HEP). - ISSN 0949-9962.
Type of publication:	Book / Working Paper
Notes:	17 pages
Classification:	C12 - Hypothesis Testing ; C22 - Time-Series Models ; F31 - Foreign Exchange
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10009018880