While it is widely agreed that Purchasing Power Parity (PPP) holds as a long-run concept the specific dynamic driving the process is largely build upon a priori economic belief rather than a thorough statistical modeling procedure. The two prevailing time series models, i.e. the exponential...

Recent research has generated support to the notion that the real exchange rate adjustment is nonlinear and that the PPP half-life is faster than the puzzling 3 to 5 years based on linear models. While different nonlinear models survive the specification tests against linear ones, there is...

This study examines nonlinear adjustment effects in the purchasing power parity (PPP) between South Africa and her main currency trading partners; namely, the US, the UK, the Euro area, China and Japan. We use monthly data of the nominal exchange rates and domestic price level data collected...

This paper estimates a model of the real exchange rate including standard fundamentals as well as two alternative measures of inflation expectations for five inflation targeting countries (UK, Canada, Australia, New Zealand, Sweden) over the period January 1993-July 2019. Both a benchmark linear...

This paper offers a new insight into real exchange rate behaviour in Latin America. Using quarterly data over the sample period 1973Q2-2005Q4, the analysis indicates that the real exchange rates of Argentina, Brazil and Venezuala can be described as non-linear trend stationary processes. This...

Exponential smooth transition autoregressive (ESTAR) models are widely used in the international finance literature, particularly for the modelling of real exchange rates. We show that the exponential function is ill-suited as a regime weighting function because of two undesirable properties....

This paper builds on Kocenda (2001) and extends it in two ways. First, two new intervals of the proximity parameter ε (over which the correlation integral is calculated) are specified. For these ε-ranges new critical values for various lengths of the data sets are introduced and through Monte...

The effect of the single currency on the Purchasing Power Parity (PPP) hypothesis is examined in this study for the 15 EU countries, vis a vis the US dollar, before and after the advent of the euro. Standard as well as nonlinear unit root tests are employed on the time series dimension. Unit...

In this paper we introduce a new nonlinear Markov-STAR model to capture both the markov switching and smooth transition dynamics for real exchange rates. The Markov switching part captures the effect of time variations of the equilibrium exchange rates, while the smooth transition part models...