Analysis for Purchasing Power Parity of nonlinear smooth transition switching model

• Main Authors: Wang Yu Ping, 王郁萍
• Other Authors: Yu-Ping, Wang
• Format: Others
• Language: zh-TW
• Published: 2009
• Online Access: http://ndltd.ncl.edu.tw/handle/21964403414136445287

碩士 === 淡江大學 === 財務金融學系碩士班 === 97 === In this paper, we examine the Purchasing Power Parity(PPP) in Japan, applying linearity tests by Teräsvirta (1994). Our results clearly reject linear model in favor of the nonlinear smooth transition switching model with two thresholds of transition variables. We respectively examine whether the PPP will be hold or not in the band of two thresholds or out of the band of two thresholds. We find if data in the band, the PPP will not be hold. Instead, if data out of the band, the PPP will be hold. We think this phenomenon result in nominal exchange rates exist the neutral band. The obstacles which impede PPP hold is also the main reason for existing the neutral band of nominal exchange rates. These obstacles include in the presence of transaction costs, tariff, heterogeneous expectation and interference by central bank. These obstacles also are called opportunity costs if on the economic views. When market is out of the equilibrium, and the gains from arbitrage are greater than the costs from arbitrage. The activities of arbitrage can bring the market to the equilibrium if activities of arbitrage can normally work. In this case, PPP will hold. By the contraries, if the gains from arbitrage are less than the costs from arbitrage, arbitrager won’t make arbitrage. So the market is still out of the equilibrium, the PPP will not be hold. We use the non-linear smooth transition switching model to examine the PPP, offering another explanation for PPP.