This paper is focused on testing the relative version of the purchasing power parity (PPP). It tries to shed light on this so called “PPP puzzle” for a set of transition countries – twelve new EU Member States. Since results of similar studies in the literature have been ambiguous, a set...

A novel procedure to test for unit root in a nonlinear framework is proposed by first introducing a new model – the MT-STAR model – which has similar properties as the ESTAR model but reduces the effects of the identification problem and can also account for cases where the adjustment...

Recent studies on general equilibrium models with transaction costs show that the dynamics of the real exchange rate are necessarily nonlinear. Our contribution to the literature on nonlinear price adjustment mechanisms is threefold. First, we model the real exchange rate by a Multi-Regime...