On the performance of a nonparametric measure of convergence towards purchasing power parity in the presence of linearity

In this study, we have assessed the performance of the nonparametric measure of convergence towards purchasing power parity, as previously suggested by Shintani (2006). While the measure, which is also applicable to nonlinear processes, should correspond to the exact half-life of a linear process when the true data-generating process is linear, we find, in practice, that it is too far off the mark and thus should not be employed. We recommend testing linearity first, before applying the measure of convergence.