NON-LINEAR ADJUSTMENT PROCESS IN CANADIAN DOLLAR / US DOLLAR REAL EXCHANGE RATES

Purchasing power parity (PPP) hypothesis was examined in dollar Canada /dollar US and real exchange rates via a non-linear framework using monthly data from 2002 (7) to 2012 (7). Many empirical studies based on the linear framework have failed to find clear supporting evidence for the validity of PPP hypothesis. In this paper, this hypothesis was tested using a two-stage procedure suggested by Engle and Granger (1987) and it was shown to fail to reject non-cointegration. Comparing the linear compared to the nonlinear STAR model led to the rejection of linearity; but, ESTAR process was confirmed. Moreover, the parameter estimates of the ESTAR model established a certain pattern of fast adjustment for large deviations, thus providing strong evidence for a mean-reverting behavior in dollar Canada / dollar US real exchange rates.

کلیدواژه ها:

Purchasing Power Parity ، Non-linear Adjustment Process ، ESTAR