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Nonlinearity and structural breaks in Irish PPP relationships: an application of random field regression


Bond, Derek; Harrison, Michael J.; O'Brien, Edward J


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Abstract Using nominal and real exchange rates for Ireland relative to Germany and the UK from 1975 to 2003, this paper explores likely sources of nonlinearity in purchasing power parity (PPP) relationships and difficulties in employing an I(1)/I(0) econometric framework. Tests for fractional integration and nonlinearity, including random field regression-based procedures, are applied. Results reveal shortcomings in the standard cointegration and smooth transition autoregression approaches to modelling, and point to multiple structural changes models. Such a model for the case of Ireland and Germany suggests that PPP holds not only in the long run but also in the medium to short term.
Klassifikation Volkswirtschaftslehre; Wirtschaftsstatistik, Ökonometrie, Wirtschaftsinformatik
Freie Schlagwörter purchasing power parity; fractional Dickey-Fuller test; smooth transition autoregression; random field regression; multiple structural changes model
Sprache Dokument Englisch
Publikationsjahr 2009
Seitenangabe 25 S.
Zeitschriftentitel Applied Economics (2009)
DOI http://dx.doi.org/10.1080/00036840902780144
Status Postprint; begutachtet (peer reviewed)
Lizenz PEER Licence Agreement (applicable only to documents from PEER project)