|
|||||
|
|
Fourier nonlinear quantile unit root test and PPP in Africa |
|
| Authors: | Mohsen Bahmani-Oskooee Tsangyao Chang Farhang Niroomand Omid Ranjbar |
| Affiliation: | 1. The Center for Research on International Economics and Department of Economics, University of Wisconsin-Milwaukee, Milwaukee, USA;2. Feng Chia University, Department of Finance, Taichung, Taiwan;3. University of Huston-Victoria, School of Business Administration, Victoria, TX, 77901;4. Department of Economics, Allameh Tabataba'i University, Trade Promotion Organization of Iran, Tehran, Iran |
| Abstract: | 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. |
| Keywords: | Fourier function nonlinearity Purchasing Power Parity quantile unit root test smooth breaks |