We show that the use of the real effective exchange rate to test for purchasing power parity, as in Astorga (2012) and other studies, is subject to a problem that biases tests against finding evidence of PPP. The problem is illustrated using Astorga´s data on six Latin American countries.

This study applies a newly-developed Autoregressive Distributed Lag (ADL) test for threshold cointegration, proposed by Li and Lee (2010) to test the validity of long-run purchasing power parity (PPP) for G-7 countries over the January 1994 to April 2010. The empirical results indicate that PPP...

This paper investigates the relationships between country characteristics and the validity of PPP. We use three alternative time series methods to test for the stationarity of real exchange rates for each of the 72 countries over the period from 1976 to 2005. Our result shows that the evidence...

The Kapetanios, Shin, and Snell (KSS, 2003) test for a nonlinear unit root is used to study purchasing power parity using Taylor's extensive data set, d to include recent exchange rate and price level data. The results i) indicate that PPP holds with respect to the US dollar for most countries...

We study whether there is a long-run relationship between Mexican current account (CA) revenues and expenditures. Our results show that evidence in favor of this claim is drawn only when (at least) three structural break levels are allowed. The CA therefore behaves as a broken-mean stationary...

This paper applies the recently developed Kapetanios et al. (2003) nonlinear stationary test to annual time series data on real exchange rates in selected Caribbean and Latin American countries over the period 1980-2003, to determine whether or not these real exchange rates exhibit...

Several researchers have suggested that exchange rates may be characterized by nonlinear behaviour. This paper examines these nonlinearities and asymetries and estimates a Logistic Transition Regression (LSTR) of Fama Regression with the Risk Adjusted Forward Premia as transition variable....

We demonstrate a statistical procedure for selecting the most suitable empirical model to test an economic theory, using the example of the test for purchasing power parity based on the Big Mac Index. Our results show that supporting evidence for purchasing power parity, conditional on the...

The Kapetanios, Shin, and Snell (KSS, 2003) test for a nonlinear unit root is used to study purchasing power parity using Taylor's extensive data set, d to include recent exchange rate and price level data. The results i) indicate that PPP holds with respect to the US dollar for most countries...

This paper examines the validity of both the short-run and long-run purchasing power parity (PPP) hypotheses in the case of the Yen-Dollar exchange rate using two estimation methods, namely, a unit root test and an Autoregressive Distributed Lag (ARDL) cointegration test. Some important findings...