FLEXIBLE FOURIER STATIONARY TEST IN PURCHASING POWER PARITY FOR CENTRAL AND EASTERN EUROPEAN COUNTRIES

• Authors: Chi-Wei Su
• Languages of publication: EN

Abstracts

EN

This study applies stationary test with a Fourier function proposed by Becker, Enders and Lee (2006) to test the validity of long-run purchasing power parity (PPP) to assess the non-stationary properties of the real exchange rate for seven Central and Eastern European (CEE) countries. We find that our approximation has higher power to detect U-shaped breaks and smooth breaks than linear method if the true data generating process of exchange rate is in fact a stationary non-liner process. We examine the validity of PPP from the non-linear point of view and provide robust evidence clearly indicate that PPP holds true for two countries, namely Bulgaria and Romania. Our findings point out their exchange rate adjustment is mean reversion towards PPP equilibrium values in a non-linear way.

Keywords

EN

FOURIER STATIONARY TEST; PURCHASING; EUROPEAN COUNTRIES; EXCHANGE RATE

• Publisher: Institute of Slovak and World Economics and Institute for Forecasting, Slovak Academy of Sciences
• Journal: Ekonomický časopis (Journal of Economics)
• Year: 2012
• Volume: 60
• Issue: 1
• Pages: 19 – 31

Contributors

author

Chi-Wei Su

• Tamkang University, Department of International Business, Yingzhuan Rd. No. 151, Danshui Town, New Taipei City 251, Taiwan (R.O.C.)