The 38 references with contexts in paper Christopher F. Baum, Mustafa Caglayan, John Barkoulas (1998) “Nonlinear Adjustment to Purchasing Power Parity in the post-Bretton Woods Era” / RePEc:boc:bocoec:404

3
Coleman, A.M., 1995. Arbitrage, storage and the GLaw o fone priceH: New theory for the time series analysis of an old problem. Unpublished working paper, Princeton
Total in-text references: 2
  1. In-text reference with the coordinate start=4269
    Prefix
    Papell (1997) and Liu and Maddala (1996) also 1nd that evidence o fmean reversion in panels o freal exchange rates is very sensitive to the groups o fcountries considered. Recently, an alternative explanation bases the persistence o fmanaged-Boat deviations from parity on the presence of market frictions that impede commodity trade. Dumas (1992), Uppal (1993),
    Exact
    Sercu et al. (1995), and Coleman (1995)
    Suffix
    develop equilibrium models o freal exchange rate determination which take into account transactions costs and show that adjustment o freal exchange rates toward PPP is necessarily a nonlinear process.

  2. In-text reference with the coordinate start=10753
    Prefix
    Section 4 concludes with a summary o fthe evidence. 2.1 2 Nonlinear Adjustment toward PPP The ESTAR model of deviations from PPP In a framework of dynamic equilibrium in spatially separated markets, Dumas (1992), Uppal (1993),
    Exact
    Sercu et al. (1995), and Coleman (1995)
    Suffix
    show that the presence o ftransaction costs in international trade implies that deviations from PPP converge to parity in a 5 nonlinear fashion. Transaction costs create a band of inaction within which international price differentials are not arbitraged away; only price differentials exceeding transaction costs (outside the band) are pro1table to arbitrage.

5
Diebold, F. X., Husted, S., Rush, M., 1991. Real exchange rates under the gold standard. Journal o fPolitical Economy 99, 1252-1271.
Total in-text references: 1
  1. In-text reference with the coordinate start=2098
    Prefix
    like transaction costs, taxation, subsidies, actual or threatened trade restrictions, the existence o fnontraded goods, imper fect competition, foreign exchange market interventions, and the differential composition of market baskets and price indices across countries, one may expect PPP to be valid only in the long-run. Empirical studies over long periods have supported long-run PPP
    Exact
    (Diebold et al. (1991), Taylor (1996), Michael et al. (1997)).
    Suffix
    However, results are mixed when the recent Boating-rate period is examined. Using standard unit-root tests, Corbae and Ouliaris (1988), Meese and Rogoff (1988), Edison and Fisher (1991), and Grilli and Kaminsky (1991) cannot reject the unit-root null hypothesis for real exchange rates in the managed-Boat regime.

6
Dumas, B., 1992. Dynamic equilibrium and the real exchange rate in a spatially separated world. Review o fFinancial Studies 5 (2), 153-180.
Total in-text references: 5
  1. In-text reference with the coordinate start=4239
    Prefix
    Papell (1997) and Liu and Maddala (1996) also 1nd that evidence o fmean reversion in panels o freal exchange rates is very sensitive to the groups o fcountries considered. Recently, an alternative explanation bases the persistence o fmanaged-Boat deviations from parity on the presence of market frictions that impede commodity trade.
    Exact
    Dumas (1992),
    Suffix
    Uppal (1993), Sercu et al. (1995), and Coleman (1995) develop equilibrium models o freal exchange rate determination which take into account transactions costs and show that adjustment o freal exchange rates toward PPP is necessarily a nonlinear process.

  2. In-text reference with the coordinate start=8262
    Prefix
    Consistent with Teräsvirta (1994), i fan aggregated process is observed, which is the case with our data set here, regime changes may be smooth rather than discrete as long as heterogeneous economic agents do not act simultaneously (which is unlikely) even i fthey individually make dichotomous decisions. Additionally, in the analytics by
    Exact
    Dumas (1992) and
    Suffix
    others, the adjustment process to parity is smooth rather than discrete. We apply the ESTAR methodology to a sample o fpost-Bretton Woods monthly data for a broad set of U.S. trading partners: seventeen countriesF CPI-based measures and eleven countriesF WPI-based measures.

  3. In-text reference with the coordinate start=10726
    Prefix
    Section 4 concludes with a summary o fthe evidence. 2.1 2 Nonlinear Adjustment toward PPP The ESTAR model of deviations from PPP In a framework of dynamic equilibrium in spatially separated markets,
    Exact
    Dumas (1992),
    Suffix
    Uppal (1993), Sercu et al. (1995), and Coleman (1995) show that the presence o ftransaction costs in international trade implies that deviations from PPP converge to parity in a 5 nonlinear fashion. Transaction costs create a band of inaction within which international price differentials are not arbitraged away; only price differentials exceeding transaction costs (outside the band) are pro1table

  4. In-text reference with the coordinate start=12629
    Prefix
    Therefore, in equilibrium under rational expectations the real exchange rate can deviate from its parity value of unity. In this framework, the real exchange rate exhibits mean reversion for large deviations from PPP, but Gspends most of the time away from parity...H
    Exact
    (Dumas (1992),
    Suffix
    p.154). To model the behavior o fthe real exchange rate in this nonlinear context, we must specify a structure which may be considered a generalization of the standard linear model and which may be estimated from the available data.

  5. In-text reference with the coordinate start=14951
    Prefix
    It is particularly attractive in the present context, as the strength o fthe equilibrating force is increasing in the (absolute) magnitude of the degree of disequilibrium, in line with predictions from the analytics of Dumas and others. Their framework, in which G...longrun behavior is very different from short-run behavior...H
    Exact
    (Dumas (1992),
    Suffix
    p. 171), is poorly approximated by the constant speed o fadjustment o fthe linear cointegration framework, compared to the Bexible nature of the ESTAR approach. In this context, the ESTAR model will be more suitable than the TAR framework in analyzing the dynamic behavior o fthe deviations from PPP.

7
Edison, H. J., Fisher, E.O., 1991. A long-run view o fthe European monetary system. Journal o fInternational Money and Finance 10, 53-70.
Total in-text references: 1
  1. In-text reference with the coordinate start=2317
    Prefix
    Empirical studies over long periods have supported long-run PPP (Diebold et al. (1991), Taylor (1996), Michael et al. (1997)). However, results are mixed when the recent Boating-rate period is examined. Using standard unit-root tests, Corbae and Ouliaris (1988),
    Exact
    Meese and Rogoff (1988), Edison and Fisher (1991), and Grilli and Kaminsky (1991)
    Suffix
    cannot reject the unit-root null hypothesis for real exchange rates in the managed-Boat regime. In contrast, Pedroni (1995), Frankel and Rose (1996), Lothian (1997), Oh (1996), Wu (1996), and Papell and Theodoridis (1998) 1nd strong evidence of mean reversion in real exchange rates by implementing panel data variants o fstandard unit-root tests.

8
Engel, C., Hendrickson, M., Rogers, J., 1997. Intra-national, intra-continental and intra-planetary PPP. National Bureau o fEconomic Research, Cambridge MA. Working Paper 6069.
Total in-text references: 1
  1. In-text reference with the coordinate start=3886
    Prefix
    However, their evidence is not supportive o fmean reversion for GNP deBator- and PPICbased real exchange rates for the same panel of countries. Taylor and Sarno also point to a number o fpit falls when using panel unit-root tests. See Higgins and Zakra jsek (1999) for evidence contrary to that of OFConnellFs. 2 3 4 2 rates is reported in
    Exact
    Engel et al. (1997). Papell (1997) and Liu and Maddala (1996)
    Suffix
    also 1nd that evidence o fmean reversion in panels o freal exchange rates is very sensitive to the groups o fcountries considered. Recently, an alternative explanation bases the persistence o fmanaged-Boat deviations from parity on the presence of market frictions that impede commodity trade.

9
Engle, R. F., Granger, C.W.J., 1987. Co-integration and error correction: representation, estimation, and testing. Econometrica 55, 251-276.
Total in-text references: 1
  1. In-text reference with the coordinate start=22256
    Prefix
    InternationalFinancialStatistics 3.2 Tests for cointegration t ()ttt (111) ε S,P,P ,, The validity o fthe PPP hypothesis as a long-run equilibrium concept requires that in (5) be a stationary process, that is, the system variablesshould form a cointegrated system
    Exact
    (Engle and Granger (1987)).
    Suffix
    The strict (absolute) version o fPPP requires that the cointegrating vector be, imposing the joint restrictions of symmetryand proportionality. However, as discussed above, these restrictions may not be consistent with the empirical evidence due to measurement errors in prices, differential composition o fprice indices across countries, and differential productivity shocks.

10
Fisher, E., Park, J., 1991. Testing purchasing power parity under the null hypothesis o fcointegration. Economic Journal 101, 1476-1484.
Total in-text references: 1
  1. In-text reference with the coordinate start=7058
    Prefix
    First, we estimate the deviations series from PPP using cointegration analysis, rather than imposing the strict PPPcointegrating vector in calculating real exchange rates. Strong PPP might not hold due to differential composition o fprice indices across countries (Patel (1990)), differential productivity shocks
    Exact
    (Fisher and Park (1991)), and
    Suffix
    measurement errors in prices as a result o faggregation and index construction (Taylor (1988), Cheung and Lai (1993)). This latter rationale is very compelling, since available price indices are likely to be Bawed approximations to the theoretical constructs underlying PPP.

11
Frankel, J. A., Rose, A., 1996. Mean reversion within and between countries: A panel project on purchasing power parity. Journal o fInternational Economics 40, 209-224.
Total in-text references: 1
  1. In-text reference with the coordinate start=2516
    Prefix
    Using standard unit-root tests, Corbae and Ouliaris (1988), Meese and Rogoff (1988), Edison and Fisher (1991), and Grilli and Kaminsky (1991) cannot reject the unit-root null hypothesis for real exchange rates in the managed-Boat regime. In contrast,
    Exact
    Pedroni (1995), Frankel and Rose (1996), Lothian (1997), Oh (1996), Wu (1996), and Papell and Theodoridis (1998)
    Suffix
    1nd strong evidence of mean reversion in real exchange rates by implementing panel data variants o fstandard unit-root tests.However, OFConnell (1998a) strongly disputes these mean-reversion 1ndings in real exchange rates as they fail to control for cross-sectional dependence in the data.

12
Froot, K. A., Rogoff, K., 1995. Perspectives on PPP and long-run real exchange rates. In: Grossman, G., Rogoff, K. (Eds.), Handbook o fInternational Economics. North-
Total in-text references: 1
  1. In-text reference with the coordinate start=3197
    Prefix
    Additional evidence against reversion to PPP based on a panel o freal exchange 3 4 1 Relative PPP, which is implied by absolute PPP, states that the growth rate in the nominal exchange rate equals the differential between the growth rates in home and foreign price indices. See
    Exact
    Rogoff (1996) and Froot and Rogoff (1995)
    Suffix
    for a review of the literature on PPP. Employing an alternative multivariate unit-root test where the null hypothesis is nonstationarity o fat least one o f the series under consideration, Taylor and Sarno (1998) 1nd strong support for mean reversion in a panel of CPI-based U.

14
Gallant, R., Rossi, P., Tauchen, G., 1993. Nonlinear dynamic structures. Econometrica 61, 871-907.
Total in-text references: 1
  1. In-text reference with the coordinate start=34393
    Prefix
    We produce impulse response functions by estimatingcorresponding to a representative (average) history or initial conditions vector. Setting the conditioning vector to ensures that the vector o finitial conditions G...lies near the center o fthe data where the conditional density is most precisely estimatedH
    Exact
    (Gallant et al., (1993),
    Suffix
    p. 887). The conditional forecasts are simulated realizations obtained by iterating the 1 [] [] E E 0 =[] ωEω -11 tt 20 19 This section was included at the suggestion o fan anonymous re feree. 20 11 An alternative strategy of estimating generalized impulse response functions for a nonlinear model involves esti[]tt-Eωω. matingfor each historyand then average the obtained sequences over all possi

15
Goldberg, L.G., Gosnell, T.F., Okunev, J., 1997. Purchasing power parity: Modeling and testing mean reversion. Journal o fBanking and Finance 21, 949-966.
Total in-text references: 1
  1. In-text reference with the coordinate start=5984
    Prefix
    (TAR) model to post-Bretton Woods real exchange rates in a panel framework, 1nds little support to a market-frictions 5 6 7 8 5 6 7 8 A summary o fstylized facts regarding real exchange rate behavior in the post-Bretton Woods era is presented in Lothian (1998). Instead o fassuming instantaneous trade, Coleman considers the case in which time elapses when goods are shipped between markets.
    Exact
    Goldberg et al. (1997)
    Suffix
    derive a nonlinear Gmean reverting elastic random walk toward a stochastic PPP rateH and 1nd that the mean-reversion process is not linear for some countries. Obstfeld and Taylor detect Iband reversionF for price differentials of disaggregated as well as aggregated CPIs for thirty-two city and country locations during the 1980-1985 period.

18
Grilli, V., Kaminsky, G., 1991. Nominal exchange rate regimes and the real exchange rate. Journal o fMonetary Economics 27, 191-212.
Total in-text references: 1
  1. In-text reference with the coordinate start=2317
    Prefix
    Empirical studies over long periods have supported long-run PPP (Diebold et al. (1991), Taylor (1996), Michael et al. (1997)). However, results are mixed when the recent Boating-rate period is examined. Using standard unit-root tests, Corbae and Ouliaris (1988),
    Exact
    Meese and Rogoff (1988), Edison and Fisher (1991), and Grilli and Kaminsky (1991)
    Suffix
    cannot reject the unit-root null hypothesis for real exchange rates in the managed-Boat regime. In contrast, Pedroni (1995), Frankel and Rose (1996), Lothian (1997), Oh (1996), Wu (1996), and Papell and Theodoridis (1998) 1nd strong evidence of mean reversion in real exchange rates by implementing panel data variants o fstandard unit-root tests.

20
Johansen, S., 1988. Statistical analysis o fcointegrating vectors. Journal o fEconomic Dynamics and Control 12, 231-254.
Total in-text references: 1
  1. In-text reference with the coordinate start=22735
    Prefix
    However, as discussed above, these restrictions may not be consistent with the empirical evidence due to measurement errors in prices, differential composition o fprice indices across countries, and differential productivity shocks. The PPP relationship in (5) is estimated using the Johansen method
    Exact
    (Johansen (1988), Johansen and Juselius (1990)),
    Suffix
    a reduced rank regression technique.The Johansen 11 1212 (=)(==1) ---13 13 All system variables have been tested for the presence of a unit root using the Augmented Dickey-Fuller and method employs a VAR framework which incorporates both the short- and long-run dynamics o fthe system.

21
Johansen, S., Juselius, K., 1990. Maximum likelihood estimation and inference on cointegrationCWith applications to the demand for money, Oxford Bulletin of Economics and Statistics 52, 169-210.
Total in-text references: 1
  1. In-text reference with the coordinate start=22735
    Prefix
    However, as discussed above, these restrictions may not be consistent with the empirical evidence due to measurement errors in prices, differential composition o fprice indices across countries, and differential productivity shocks. The PPP relationship in (5) is estimated using the Johansen method
    Exact
    (Johansen (1988), Johansen and Juselius (1990)),
    Suffix
    a reduced rank regression technique.The Johansen 11 1212 (=)(==1) ---13 13 All system variables have been tested for the presence of a unit root using the Augmented Dickey-Fuller and method employs a VAR framework which incorporates both the short- and long-run dynamics o fthe system.

22
Koop, G., Pesaran, M.H., Potter, S., 1996. Impulse response analysis in nonlinear multivariate models. Journal o fEconometrics 74, 119-147.
Total in-text references: 2
  1. In-text reference with the coordinate start=33472
    Prefix
    Unlike a linear model, impulse response functions for a nonlinear model are characterized by dependence on initial conditions (history or path dependence) and the size and sign o fthe innovation (shock dependence. or asymmetry). Following
    Exact
    Koop et al. (1996),
    Suffix
    the impulse response function can be expressed as the difference between two conditional 1rst-moment pro1les: (6) |-| --1+1+1 1 Xttthtttht X tt ()=[][] GI h,- ,ω EX - ,ω EX ω GIX h -tω t whereis the generalized impulse response function of a variable,is the forecasting horizon,is the perturbation to the process at time ,is the conditioning information set at time(reBecting the history o

  2. In-text reference with the coordinate start=35106
    Prefix
    involves esti[]tt-Eωω. matingfor each historyand then average the obtained sequences over all possible drawings fromGiven nonlinearities, the impulse response functions derived by these alternative strategies are not expected to be the same. 16 time series model, randomly drawing with replacement from the estimated residuals of the model, and then averaging over the number o frandom draws (see
    Exact
    Koop et al.(1996)
    Suffix
    for a detailed description of this methodology). For our real exchange rate series, we derive impulse response functions by settingmonths and averaging the conditional forecast for each forecasting horizon over 5,000 draws.

23
Li, K., 1999. Testing symmetry and proportionality in PPP: A panel data approach. Journal o fBusiness and Economic Statistics 17 (4), 409-418.
Total in-text references: 1
  1. In-text reference with the coordinate start=7589
    Prefix
    These analytical justi1cations which explain why the cointegrating vector between nominal exchange rates and prices may vary greatly across countries have received strong empirical support. The data in several studies (e.g.
    Exact
    Pedroni (1997) and Li (1999))
    Suffix
    strongly reject the symmetry and proportionality restrictions required for strict PPP. As a second contribution, we employ the ESTAR framework to analyze the dynamic behavior of deviations from PPP, which may be advantageous relative to the standard TAR framework in which regime changes occur abruptly.

24
Liu, P., Maddala, G.S., 1996. Do panel data cross-country regressions rescue purchasing power parity (PPP) theory? Unpublished working paper, Department o fEconomics, The Ohio State University, Columbus OH
Total in-text references: 1
  1. In-text reference with the coordinate start=3886
    Prefix
    However, their evidence is not supportive o fmean reversion for GNP deBator- and PPICbased real exchange rates for the same panel of countries. Taylor and Sarno also point to a number o fpit falls when using panel unit-root tests. See Higgins and Zakra jsek (1999) for evidence contrary to that of OFConnellFs. 2 3 4 2 rates is reported in
    Exact
    Engel et al. (1997). Papell (1997) and Liu and Maddala (1996)
    Suffix
    also 1nd that evidence o fmean reversion in panels o freal exchange rates is very sensitive to the groups o fcountries considered. Recently, an alternative explanation bases the persistence o fmanaged-Boat deviations from parity on the presence of market frictions that impede commodity trade.

25
Lothian, J., 1997. Multi-country evidence on the behavior o fpurchasing power parity under the current Boat. Journal o fInternational Money and Finance 16, 19-35.
Total in-text references: 1
  1. In-text reference with the coordinate start=2516
    Prefix
    Using standard unit-root tests, Corbae and Ouliaris (1988), Meese and Rogoff (1988), Edison and Fisher (1991), and Grilli and Kaminsky (1991) cannot reject the unit-root null hypothesis for real exchange rates in the managed-Boat regime. In contrast,
    Exact
    Pedroni (1995), Frankel and Rose (1996), Lothian (1997), Oh (1996), Wu (1996), and Papell and Theodoridis (1998)
    Suffix
    1nd strong evidence of mean reversion in real exchange rates by implementing panel data variants o fstandard unit-root tests.However, OFConnell (1998a) strongly disputes these mean-reversion 1ndings in real exchange rates as they fail to control for cross-sectional dependence in the data.

26
Lothian, J., 1998. Some new stylized facts of Boating exchange rates. Journal of
Total in-text references: 1
  1. In-text reference with the coordinate start=5840
    Prefix
    However, OFConnell (1998b), utilizing an equilibrium threshold autoregression (TAR) model to post-Bretton Woods real exchange rates in a panel framework, 1nds little support to a market-frictions 5 6 7 8 5 6 7 8 A summary o fstylized facts regarding real exchange rate behavior in the post-Bretton Woods era is presented in
    Exact
    Lothian (1998).
    Suffix
    Instead o fassuming instantaneous trade, Coleman considers the case in which time elapses when goods are shipped between markets. Goldberg et al. (1997) derive a nonlinear Gmean reverting elastic random walk toward a stochastic PPP rateH and 1nd that the mean-reversion process is not linear for some countries.

28
Meese, R. A., Rogoff, K.S., 1988. Was it real? The exchange-rate interest differential 21 relation over the modern Boating rate period. Journal o fFinance 43, 933-948.
Total in-text references: 1
  1. In-text reference with the coordinate start=2317
    Prefix
    Empirical studies over long periods have supported long-run PPP (Diebold et al. (1991), Taylor (1996), Michael et al. (1997)). However, results are mixed when the recent Boating-rate period is examined. Using standard unit-root tests, Corbae and Ouliaris (1988),
    Exact
    Meese and Rogoff (1988), Edison and Fisher (1991), and Grilli and Kaminsky (1991)
    Suffix
    cannot reject the unit-root null hypothesis for real exchange rates in the managed-Boat regime. In contrast, Pedroni (1995), Frankel and Rose (1996), Lothian (1997), Oh (1996), Wu (1996), and Papell and Theodoridis (1998) 1nd strong evidence of mean reversion in real exchange rates by implementing panel data variants o fstandard unit-root tests.

29
Michael, P., Nobay, A. R., Peel, D.A., 1997. Transactions costs and nonlinear adjustment in real exchange rates: An empirical investigation. Journal o fPolitical Economy 105 (4), 862-879.
Total in-text references: 4
  1. In-text reference with the coordinate start=2098
    Prefix
    like transaction costs, taxation, subsidies, actual or threatened trade restrictions, the existence o fnontraded goods, imper fect competition, foreign exchange market interventions, and the differential composition of market baskets and price indices across countries, one may expect PPP to be valid only in the long-run. Empirical studies over long periods have supported long-run PPP
    Exact
    (Diebold et al. (1991), Taylor (1996), Michael et al. (1997)).
    Suffix
    However, results are mixed when the recent Boating-rate period is examined. Using standard unit-root tests, Corbae and Ouliaris (1988), Meese and Rogoff (1988), Edison and Fisher (1991), and Grilli and Kaminsky (1991) cannot reject the unit-root null hypothesis for real exchange rates in the managed-Boat regime.

  2. In-text reference with the coordinate start=5045
    Prefix
    In this dynamic equilibrium framework, deviations from PPP follow a nonlinear stochastic process that is mean-reverting. In an initial test o fthe hypothesis o fthe analytic work o fPPP adjustment process based on market frictions,
    Exact
    Michael et al. (1997)
    Suffix
    apply an exponential smooth transition autoregression (ESTAR) model to two data setsCa two-century span o fannual data and a monthly sample o finterwar observationsCand 1nd strong support for the nonlinear representation.

  3. In-text reference with the coordinate start=14052
    Prefix
    Also, as long as heterogeneous economic agents (who individually make dichotomous decisions) do not act simultaneously, regime changes at an aggregated level may be smooth rather than discrete. These considerations led
    Exact
    Michael et al. (1997) to
    Suffix
    apply a particular form of the Ismooth transitionF threshold autoregressive (STAR) model. In the STAR framework, the 1xed thresholds o fa standard threshold autoregressive (TAR) model are replaced with a smooth function, which need only be continuous and non-decreasing (Tong (1993), p. 108).

  4. In-text reference with the coordinate start=32791
    Prefix
    Additionally, a comparison o fthe values o fthe transition parameter obtained here with those reported F F, ()=0) ()=1) ˆ 180 H--F,. -,-, :+=0(1263)=9168 ˆˆ The hypothesisresults in anwith a marginal signi1cance level o f0.002. However, the evidence for Norway should be interpreted with caution, as none of the crucial coefficients (and are individually statistically signi1cant. ˆ) 15 in
    Exact
    Michael et al. (1997)
    Suffix
    suggests that the persistence o fdeviations from parity is much stronger in the post-Bretton Woods era than in the interwar period (the 1920s) or in the two-century span 1802-1992 included in their study. 19 3.5 Generalized impulse response functions To obtain further insights into the dynamic structure of real exchange rates, we perform impulse response function analysis to evaluate the propagat

30
Obstfeld, M., Taylor, A., 1997. Nonlinear aspects of goods-market arbitrage and adjustment: HeckscherFs commodity points revisited, Journal o fthe Japanese & International Economies 11 (4), 441-479.
Total in-text references: 1
  1. In-text reference with the coordinate start=5345
    Prefix
    o fthe hypothesis o fthe analytic work o fPPP adjustment process based on market frictions, Michael et al. (1997) apply an exponential smooth transition autoregression (ESTAR) model to two data setsCa two-century span o fannual data and a monthly sample o finterwar observationsCand 1nd strong support for the nonlinear representation. Subsequently, using threshold autoregression modelling,
    Exact
    Obstfeld and Taylor (1997) and OFConnell and Wei (1997)
    Suffix
    report additional evidence o fnonlinear price adjustment induced by the presence o ftransaction costs. However, OFConnell (1998b), utilizing an equilibrium threshold autoregression (TAR) model to post-Bretton Woods real exchange rates in a panel framework, 1nds little support to a market-frictions 5 6 7 8 5 6 7 8 A summary o fstylized facts regarding real exchange rate behavior in th

31
OFConnell, P. G., 1998a. The overvaluation o fpurchasing power parity. Journal o f
Total in-text references: 1
  1. In-text reference with the coordinate start=2761
    Prefix
    In contrast, Pedroni (1995), Frankel and Rose (1996), Lothian (1997), Oh (1996), Wu (1996), and Papell and Theodoridis (1998) 1nd strong evidence of mean reversion in real exchange rates by implementing panel data variants o fstandard unit-root tests.However,
    Exact
    OFConnell (1998a)
    Suffix
    strongly disputes these mean-reversion 1ndings in real exchange rates as they fail to control for cross-sectional dependence in the data. Additional evidence against reversion to PPP based on a panel o freal exchange 3 4 1 Relative PPP, which is implied by absolute PPP, states that the growth rate in the nominal exchange rate equals the differential between the growth rates in home and foreig

33
OFConnell, P. G., 1998b. Market frictions and real exchange rates. Journal of International Money and Finance 17, 71-95.
Total in-text references: 2
  1. In-text reference with the coordinate start=5527
    Prefix
    Subsequently, using threshold autoregression modelling, Obstfeld and Taylor (1997) and OFConnell and Wei (1997) report additional evidence o fnonlinear price adjustment induced by the presence o ftransaction costs. However,
    Exact
    OFConnell (1998b),
    Suffix
    utilizing an equilibrium threshold autoregression (TAR) model to post-Bretton Woods real exchange rates in a panel framework, 1nds little support to a market-frictions 5 6 7 8 5 6 7 8 A summary o fstylized facts regarding real exchange rate behavior in the post-Bretton Woods era is presented in Lothian (1998).

  2. In-text reference with the coordinate start=40466
    Prefix
    Evidence from generalized impulse response functions also supports the presence o fnonlinearities. This evidence o fnonlinear adjustment to parity is in contrast to the negative evidence obtained by
    Exact
    OFConnell (1998b)
    Suffix
    for panels o freal exchange rates in a TAR framework. Although the unit-root hypothesis may be rejected for a number of the PPP deviations series, a shock to these series dies out very slowly. Future research may focus on the factors that distinguish those countries whose deviations from long-run PPP are characterized by nonlinear behavior, as well as those related to this unusually slow speed o

34
OFConnell, P. G., Wei, S., 1997. IThe bigger they are, the harder they fallF: How price differences across U.S. cities are arbitraged. National Bureau o fEconomic Research, Cambridge MA
Total in-text references: 1
  1. In-text reference with the coordinate start=5345
    Prefix
    o fthe hypothesis o fthe analytic work o fPPP adjustment process based on market frictions, Michael et al. (1997) apply an exponential smooth transition autoregression (ESTAR) model to two data setsCa two-century span o fannual data and a monthly sample o finterwar observationsCand 1nd strong support for the nonlinear representation. Subsequently, using threshold autoregression modelling,
    Exact
    Obstfeld and Taylor (1997) and OFConnell and Wei (1997)
    Suffix
    report additional evidence o fnonlinear price adjustment induced by the presence o ftransaction costs. However, OFConnell (1998b), utilizing an equilibrium threshold autoregression (TAR) model to post-Bretton Woods real exchange rates in a panel framework, 1nds little support to a market-frictions 5 6 7 8 5 6 7 8 A summary o fstylized facts regarding real exchange rate behavior in th

35
Oh, K.-Y., 1996. Purchasing power parity and unit root tests using panel data. Journal o fInternational Money and Finance 15, 405-418.
Total in-text references: 1
  1. In-text reference with the coordinate start=2516
    Prefix
    Using standard unit-root tests, Corbae and Ouliaris (1988), Meese and Rogoff (1988), Edison and Fisher (1991), and Grilli and Kaminsky (1991) cannot reject the unit-root null hypothesis for real exchange rates in the managed-Boat regime. In contrast,
    Exact
    Pedroni (1995), Frankel and Rose (1996), Lothian (1997), Oh (1996), Wu (1996), and Papell and Theodoridis (1998)
    Suffix
    1nd strong evidence of mean reversion in real exchange rates by implementing panel data variants o fstandard unit-root tests.However, OFConnell (1998a) strongly disputes these mean-reversion 1ndings in real exchange rates as they fail to control for cross-sectional dependence in the data.

37
Papell, D., 1997. Searching for stationarity: Purchasing power parity under the current Boat. Journal o fInternational Economics 43, 313-332.
Total in-text references: 1
  1. In-text reference with the coordinate start=3886
    Prefix
    However, their evidence is not supportive o fmean reversion for GNP deBator- and PPICbased real exchange rates for the same panel of countries. Taylor and Sarno also point to a number o fpit falls when using panel unit-root tests. See Higgins and Zakra jsek (1999) for evidence contrary to that of OFConnellFs. 2 3 4 2 rates is reported in
    Exact
    Engel et al. (1997). Papell (1997) and Liu and Maddala (1996)
    Suffix
    also 1nd that evidence o fmean reversion in panels o freal exchange rates is very sensitive to the groups o fcountries considered. Recently, an alternative explanation bases the persistence o fmanaged-Boat deviations from parity on the presence of market frictions that impede commodity trade.

38
Papell, D., Theodoridis, H., 1998. Increasing evidence o fpurchasing power parity over the current Boat. Journal o fInternational Money and Finance 17, 41-50.
Total in-text references: 2
  1. In-text reference with the coordinate start=2516
    Prefix
    Using standard unit-root tests, Corbae and Ouliaris (1988), Meese and Rogoff (1988), Edison and Fisher (1991), and Grilli and Kaminsky (1991) cannot reject the unit-root null hypothesis for real exchange rates in the managed-Boat regime. In contrast,
    Exact
    Pedroni (1995), Frankel and Rose (1996), Lothian (1997), Oh (1996), Wu (1996), and Papell and Theodoridis (1998)
    Suffix
    1nd strong evidence of mean reversion in real exchange rates by implementing panel data variants o fstandard unit-root tests.However, OFConnell (1998a) strongly disputes these mean-reversion 1ndings in real exchange rates as they fail to control for cross-sectional dependence in the data.

  2. In-text reference with the coordinate start=27115
    Prefix
    This is especially true for CPI-based real exchange rates for Germany, Denmark, Norway, and Finland and WPI-based real exchange rates for Japan and Greece, for which no evidence o flinear cointegration was found. p, , 16 17 15 Some authors (e.g.
    Exact
    Papell and Theodoridis (1998))
    Suffix
    argue that the strengthening o fthe evidence in support of long-run PPP for extended samples is only found when using panel methods but not univariate methods. These studies however impose the symmetry and proportionality restrictions in constructing the deviations series from parity: restrictions clearly rejected by the data.

39
Patel, J., 1990. Purchasing power parity as a long run relation. Journal o fApplied Econometrics 5, 367-379.
Total in-text references: 1
  1. In-text reference with the coordinate start=7010
    Prefix
    First, we estimate the deviations series from PPP using cointegration analysis, rather than imposing the strict PPPcointegrating vector in calculating real exchange rates. Strong PPP might not hold due to differential composition o fprice indices across countries
    Exact
    (Patel (1990)),
    Suffix
    differential productivity shocks (Fisher and Park (1991)), and measurement errors in prices as a result o faggregation and index construction (Taylor (1988), Cheung and Lai (1993)). This latter rationale is very compelling, since available price indices are likely to be Bawed approximations to the theoretical constructs underlying PPP.

40
Pedroni, P., 1995. Panel cointegration: Asymptotic and 1nite sample properties of pooled time series tests with an application to the PPP hypothesis. Unpublished working paper 95-013, Department o fEconomics, Indiana University, Bloomington IN. 22
Total in-text references: 1
  1. In-text reference with the coordinate start=2516
    Prefix
    Using standard unit-root tests, Corbae and Ouliaris (1988), Meese and Rogoff (1988), Edison and Fisher (1991), and Grilli and Kaminsky (1991) cannot reject the unit-root null hypothesis for real exchange rates in the managed-Boat regime. In contrast,
    Exact
    Pedroni (1995), Frankel and Rose (1996), Lothian (1997), Oh (1996), Wu (1996), and Papell and Theodoridis (1998)
    Suffix
    1nd strong evidence of mean reversion in real exchange rates by implementing panel data variants o fstandard unit-root tests.However, OFConnell (1998a) strongly disputes these mean-reversion 1ndings in real exchange rates as they fail to control for cross-sectional dependence in the data.

41
Pedroni, P., 1997. Fully modi1ed OLS for heterogeneous cointegrated panels and the case o fpurchasing power parity. Unpublished working paper 96-020, Department o f
Total in-text references: 1
  1. In-text reference with the coordinate start=7589
    Prefix
    These analytical justi1cations which explain why the cointegrating vector between nominal exchange rates and prices may vary greatly across countries have received strong empirical support. The data in several studies (e.g.
    Exact
    Pedroni (1997) and Li (1999))
    Suffix
    strongly reject the symmetry and proportionality restrictions required for strict PPP. As a second contribution, we employ the ESTAR framework to analyze the dynamic behavior of deviations from PPP, which may be advantageous relative to the standard TAR framework in which regime changes occur abruptly.

45
Rogoff, K., 1996. The purchasing power parity puzzle. Journal o fEconomic Literature 34, 647-668.
Total in-text references: 1
  1. In-text reference with the coordinate start=3197
    Prefix
    Additional evidence against reversion to PPP based on a panel o freal exchange 3 4 1 Relative PPP, which is implied by absolute PPP, states that the growth rate in the nominal exchange rate equals the differential between the growth rates in home and foreign price indices. See
    Exact
    Rogoff (1996) and Froot and Rogoff (1995)
    Suffix
    for a review of the literature on PPP. Employing an alternative multivariate unit-root test where the null hypothesis is nonstationarity o fat least one o f the series under consideration, Taylor and Sarno (1998) 1nd strong support for mean reversion in a panel of CPI-based U.

46
Sercu, P., Uppal, R., Van Hull, C., 1995. The exchange rate in the presence of transaction costs: Implications for tests of purchasing power parity. Journal of Finance 50, 1309-1319.
Total in-text references: 2
  1. In-text reference with the coordinate start=4269
    Prefix
    Papell (1997) and Liu and Maddala (1996) also 1nd that evidence o fmean reversion in panels o freal exchange rates is very sensitive to the groups o fcountries considered. Recently, an alternative explanation bases the persistence o fmanaged-Boat deviations from parity on the presence of market frictions that impede commodity trade. Dumas (1992), Uppal (1993),
    Exact
    Sercu et al. (1995), and Coleman (1995)
    Suffix
    develop equilibrium models o freal exchange rate determination which take into account transactions costs and show that adjustment o freal exchange rates toward PPP is necessarily a nonlinear process.

  2. In-text reference with the coordinate start=10753
    Prefix
    Section 4 concludes with a summary o fthe evidence. 2.1 2 Nonlinear Adjustment toward PPP The ESTAR model of deviations from PPP In a framework of dynamic equilibrium in spatially separated markets, Dumas (1992), Uppal (1993),
    Exact
    Sercu et al. (1995), and Coleman (1995)
    Suffix
    show that the presence o ftransaction costs in international trade implies that deviations from PPP converge to parity in a 5 nonlinear fashion. Transaction costs create a band of inaction within which international price differentials are not arbitraged away; only price differentials exceeding transaction costs (outside the band) are pro1table to arbitrage.

47
Taylor, A., 1996. International capital mobility in history: Purchasing-power parity in the long run. National Bureau o fEconomic Research, Cambridge MA. Working Paper 5742.
Total in-text references: 1
  1. In-text reference with the coordinate start=2098
    Prefix
    like transaction costs, taxation, subsidies, actual or threatened trade restrictions, the existence o fnontraded goods, imper fect competition, foreign exchange market interventions, and the differential composition of market baskets and price indices across countries, one may expect PPP to be valid only in the long-run. Empirical studies over long periods have supported long-run PPP
    Exact
    (Diebold et al. (1991), Taylor (1996), Michael et al. (1997)).
    Suffix
    However, results are mixed when the recent Boating-rate period is examined. Using standard unit-root tests, Corbae and Ouliaris (1988), Meese and Rogoff (1988), Edison and Fisher (1991), and Grilli and Kaminsky (1991) cannot reject the unit-root null hypothesis for real exchange rates in the managed-Boat regime.

48
Taylor, M., 1988. An empirical examination o flong run purchasing power parity using cointegration techniques. Applied Economics 20, 1369-1381.
Total in-text references: 1
  1. In-text reference with the coordinate start=7168
    Prefix
    Strong PPP might not hold due to differential composition o fprice indices across countries (Patel (1990)), differential productivity shocks (Fisher and Park (1991)), and measurement errors in prices as a result o faggregation and index construction
    Exact
    (Taylor (1988),
    Suffix
    Cheung and Lai (1993)). This latter rationale is very compelling, since available price indices are likely to be Bawed approximations to the theoretical constructs underlying PPP. These analytical justi1cations which explain why the cointegrating vector between nominal exchange rates and prices may vary greatly across countries have received strong empirical support.

49
Taylor, M., Sarno, L., 1998. The behavior o freal exchange rates during the postC
Total in-text references: 1
  1. In-text reference with the coordinate start=3426
    Prefix
    See Rogoff (1996) and Froot and Rogoff (1995) for a review of the literature on PPP. Employing an alternative multivariate unit-root test where the null hypothesis is nonstationarity o fat least one o f the series under consideration,
    Exact
    Taylor and Sarno (1998)
    Suffix
    1nd strong support for mean reversion in a panel of CPI-based U.S. dollar exchange rates o fthe G5 countries. However, their evidence is not supportive o fmean reversion for GNP deBator- and PPICbased real exchange rates for the same panel of countries.

52
Tong, H., 1993. Non-linear time series: A dynamical system approach. Oxford Science
Total in-text references: 1
  1. In-text reference with the coordinate start=14355
    Prefix
    These considerations led Michael et al. (1997) to apply a particular form of the Ismooth transitionF threshold autoregressive (STAR) model. In the STAR framework, the 1xed thresholds o fa standard threshold autoregressive (TAR) model are replaced with a smooth function, which need only be continuous and non-decreasing
    Exact
    (Tong (1993),
    Suffix
    p. 108). The need for symmetry in the response to positive and negative deviations from PPP leads to the exponential STAR, or ESTAR model described by Teräsvirta (1994). The ESTAR model can be viewed as a generalization o fthe double-threshold TAR model.

54
Wu, Y., 1996. Are real exchange rates nonstationary? Evidence from panel-data tests. 23 Journal o fMoney, Credit, and Banking 28, 54-63. 24
Total in-text references: 1
  1. In-text reference with the coordinate start=2516
    Prefix
    Using standard unit-root tests, Corbae and Ouliaris (1988), Meese and Rogoff (1988), Edison and Fisher (1991), and Grilli and Kaminsky (1991) cannot reject the unit-root null hypothesis for real exchange rates in the managed-Boat regime. In contrast,
    Exact
    Pedroni (1995), Frankel and Rose (1996), Lothian (1997), Oh (1996), Wu (1996), and Papell and Theodoridis (1998)
    Suffix
    1nd strong evidence of mean reversion in real exchange rates by implementing panel data variants o fstandard unit-root tests.However, OFConnell (1998a) strongly disputes these mean-reversion 1ndings in real exchange rates as they fail to control for cross-sectional dependence in the data.