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Temporal aggregation of an ESTAR process: some implications for purchasing power parity adjustment

Research output: Contribution to Journal/MagazineJournal articlepeer-review

Published
<mark>Journal publication date</mark>2006
<mark>Journal</mark>Journal of Applied Econometrics
Issue number5
Volume21
Number of pages14
Pages (from-to)655-668
Publication StatusPublished
<mark>Original language</mark>English

Abstract

Nonlinear models of deviations from PPP have recently provided an important, theoretically well motivated, contribution to the PPP puzzle. Most of these studies use temporally aggregated data to empirically estimate the nonlinear models. As noted by Taylor (2001), if the true DGP is nonlinear, the temporally aggregated data could exhibit misleading properties regarding the adjustment speeds. We examine the effects of different levels of temporal aggregation on estimates of ESTAR models of real exchange rates.