A number of authors have found significant cointegrating relationships between spot exchange rates and domestic and foreign price levels for the major currencies where the magnitude of the coefficients makes economic interpretation of PPP cumbersome. Using theoretically well motivated nonlinear...

Previous empirical work on the Purchasing Power Parity does not explicitly account for time-varying trade costs. Motivated by the recent gravity literature we incorporate a microfounded measure of trade costs into two nonlinear regression models for the real exchange rate. Using data for the...

In this paper we propose a globally stationary augmentation of the Exponential Smooth Transition Autoregressive (ESTAR) model that allows for multiple fixed points in the transition function. An F-type test statistic for the null of nonstationarity against such globally stationary nonlinear...

Economic growth models under uncertainty and rational agents with CRRA utility have been shown to provide quite fragile explanations of consumers.choice as equlib- rium comsumption paths (expected utility) are drastically dependant on distributional assumptions. We show that assuming a SNP...

This paper deals with the nonlinear modeling and forecasting of the dollar-sterling real exchange rate using a long span of data. Our contribution is threefold. First, we provide significant evidence of smooth transition dynamics in the series by employing a battery of recently developed...

The specification of Smooth Transition Regression models consists of a sequence of tests, which are typically based on the assumption of i.i.d. errors. In this paper we examine the impact of conditional heteroskedasticity and investigate the performance of several heteroskedasticity robust...

Whilst Cumulative Prospect theory (CPT) provides an explanation of gambling on longshots at actuarially unfair odds, it cannot explain why people might bet on more favoured outcomes. This paper shows that this is explicable if the degree of loss aversion experienced by the agent is reduced for...

The detection of explosive behavior in house prices and the implementation of early warning diagnosis tests are of great importance for policy-making. This paper applies the GSADF test developed by Phillips et al. (2012) and Phillips et al. (2013), a novel procedure for testing, detection and...

Nonlinear models of deviations from PPP have recently provided an important, theoretically well motivated, contribution to the PPP puzzle. In recent work the equilibrium level has been modelled either as constant or as time varying with very similar statistical fits and very different economic...

Economic growth models under uncertainty and rational agents with CRRA utility have been shown to provide quite fragile explanations of consumers.choice as equlib- rium comsumption paths (expected utility) are drastically dependant on distributional assumptions. We show that assuming a SNP...