Template-type: ReDIF-Paper 1.0
Author-Name: Juan-Ángel Jiménez-Martín
Author-Email: juanangel@ccee.ucm.es
Author-Homepage: https://www.ucm.es/fundamentos-analisis-economico2/jajm
Author-Person: pji27 
Author-Workplace-Name: Departamento de Economía Cuantitativa (Department of Quantitative Economics), Facultad de Ciencias Económicas y Empresariales 
	(Faculty of Economics and Business), Universidad Complutense de Madrid
Author-Workplace-Homepage: https://www.ucm.es/fundamentos-analisis-economico2
Author-Name: M. Dolores Robles Fernández
Author-Email: mdrobles@ccee.ucm.es
Author-Workplace-Name: Universidad Complutense de Madrid, Dpto. de Fundamentos del Análisis Económico II
Author-Workplace-Homepage: https://www.ucm.es/fundamentos-analisis-economico2
Title: Non-linear adjustment to purchasing power parity: an analysis using Fourier approximations
Abstract: This paper estimates the dynamics of adjustment to long run purchasing power parity (PPP)
	using data for 18 mayor bilateral US dollar exchange rates, over the post-Bretton Woods
	period, in a non-linear framework. We use new unit root and cointegration tests that do not
	assume a specific non-linear adjustment process. Using a first-order Fourier approximation,
	we find evidence of non-linear mean reversion in deviations from both absolute and relative
	PPP. This first-order Fourier approximation allows us to capture many features of the nonlinear
	decay detected in the data. Our results are consistent with theoretical arguments on
	international goods markets arbitrage under transaction costs as well as with an emerging
	strand of empirical literature. In this sense, this paper contributes towards forming a
	consensus on the presence of nonzero transaction costs across a broad range of countries.
Classification-JEL: F31, C22, C32
Keywords: Unit-root test, Cointegration test, Fourier approximation, nonlinear model,
exchange rates, purchasing power parity.
Length: 24 pages 
Creation-Date: 2005
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae0508.txt 
File-URL: https://eprints.ucm.es/id/eprint/7901/1/0508.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:0508