05729882

j

05729882 Lo, Ming Chien Nonlinear PPP deviations: a Monte Carlo investigation of their unconditional half-life. Stud. Nonlinear Dyn. Econom. 12, No. 4, Article No. 5, 31 p., electronic only (2008). 2008 The Berkeley Electronic Press, Berkeley, CA EN

http://www.bepress.com/snde/vol12/iss4/art5

Summary: Recent research has generated support of the notion that the real exchange rate adjustment is nonlinear and that the purchasing power parity (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 little consensus on which specific threshold-type model outperforms the others in the family. In this paper, a Monte Carlo study is designed to address the issue and the findings support that the MR-LSTAR process is the most likely suspect that generates the puzzle.