Fourier nonlinear quantile unit root test and PPP in Africa

We test the PPP hypothesis in 29 African countries using a newly developed nonlinear Quantile unit root test with a Fourier function which accounts for smooth breaks. Simulation indicates that the proposed new test has higher power than the conventional Quantile unit root test as proposed by Koneker...

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Bibliographic Details
Published inBulletin of economic research Vol. 72; no. 4; pp. 451 - 481
Main Authors Bahmani‐Oskooee, Mohsen, Chang, Tsangyao, Niroomand, Farhang, Ranjbar, Omid
Format Journal Article
LanguageEnglish
Published Oxford Blackwell Publishing Ltd 01.10.2020
Subjects
Discovery
Foreign exchange rates
Fourier function
Hypotheses
nonlinearity
Purchasing Power Parity
quantile unit root test
Simulation
smooth breaks
Africa
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Summary:We test the PPP hypothesis in 29 African countries using a newly developed nonlinear Quantile unit root test with a Fourier function which accounts for smooth breaks. Simulation indicates that the proposed new test has higher power than the conventional Quantile unit root test as proposed by Koneker and Xiao (2004). Our empirical results provide support for the PPP hypothesis in 21 out of 29 African countries, a unique discovery using their real effective exchange rates. It appears that incorporating Fourier function to nonlinear Quantile unit root test gets us closer and closer to solving the PPP puzzle in Africa.
Bibliography:Valuable comments of three anonymous referees as well as those of the associate editor are greatly appreciated. Remaining errors, however, are our own.
ISSN:0307-3378
1467-8586
DOI:10.1111/boer.12230