Standard unit root tests are not very powerful in drawing conclusions regarding the validity of Purchasing Power Parity (PPP). Rather than asking whether PPP holds throughout the whole sample period, we examine, in this study, if PPP holds sometimes by employing Hamilton-type (1989) Markov...

In this study, we show that a very simple structural break process can be easily confused with an Exponential Smooth Transition Autoregressive (ESTAR) model. Nonlinear estimates of an ESTAR model also appear to be quite significant and plausible when the model is applied to a structural break...

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)...

A spurious regression occurs when a pair of independent series, but with strong temporal properties, are found apparently to be related according to standard inference in an OLS regression. Although this is well known to occur with pairs of independent unit root processes, this paper finds...

Models that may appear to have different properties may in fact produce residuals that differ only in subtle ways. By analysing the relationships between model residuals the problems in distinguishing between models can perhaps be discovered, as illustrated by the econometric examples...