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    • Regarding the use of the unit root

    2018-11-15

    Regarding the use of the unit root test for non-linearity (Kruse, 2011), this differs from the test by Kapetanios et al. (2003) to develop an analysis considering the locational constant in the smoothed transition function to be non-zero. Thus, the approach of Kruse (2011) has higher power than the Kapetanios test and fits the analysis of PPP better given that considering the locational constant to be different from zero, as suggested by Rapach and Wohar (2006) and Taylor et al. (2001), introduces transaction costs, such as transportation, into the analysis. This paper is organized as follows: Section 2 review empirical literature for Latin America; Section 3 describes the econometric tests of linear and non-linear unit root procedures; Section 4 presents the empirical results; and finally Section 5 contains some concluding remarks.
    The PPP mtor inhibitor in Latin America In that context, He et al. (2014) applies Panel SURKSS test which is the Kapetanios et al. (2003) test based on the panel estimation method of seemingly unrelated regressions (SUR), with a Fourier function to test the validity of PPP, considering the real exchange rate, for fifteen Latin American countries over the period of December 1994 to February 2010. The empirical results from the Panel SURKSS test with a Fourier function indicate that PPP is valid for these fifteen countries, with the exception of Honduras. Wu et al. (2011) using data from 76 countries (Latin America includes the Bahamas, Barbados, Chile, Colombia, Costa Rica, Dominica, Dominican Republic, Ecuador, El Salvador, Grenada, Guatemala, Haiti, Honduras, Jamaica, Mexico, Paraguay, St. Lucia, Trinidad and Tobago, Uruguay, and Venezuela), investigates the relationship between country characteristics and the validity of PPP by examining the stationarity of real exchange rates. The authors used panel unit-root test. The principal results are that PPP holds for Africa and Latin America and PPP tends to be supported for countries with high or moderate openness, low growth rates, high inflation rates and high nominal exchange rate volatility, respectively. Su et al. (2011) investigates the validity of long-run PPP in fifteen Latin American countries (includes Argentina, Bolivia, Brazil, Chile, Columbia, Costa Rica, Domanic, Ecuador, Haiti, Honduras, Mexico, Paraguay, Peru, Uruguay, and Venezuela) over the period of December 1994 to February 2010 considering the real exchange rate. In this empirical study the authors applies a univariate unit root tests and the empirical results indicate that PPP does not hold for these fifteen countries under study. However, a stationary test with a Fourier function indicates that PPP is valid for four of these 15 Latin American countries and they are Brazil, Chile, Ecuador and Uruguay. Bahmani-Oskooee et al. (2008) test PPP hypothesis employ monthly real effective exchange rate by (REER) using the conventional ADF test as well as the Kapetanios et al. (2003) test for 88 developing countries (21 least developed countries of Latin American) for 1980 to 2005. The empirical results showed that the real effective exchange rates of developing countries revert to their mean following a nonlinear path more often than a linear path. Regarding the results for Latin America the null of nonstationarity in REER is rejected to Chile, Costa Rica, Ecuador and Mexico. Divino et al. (2009) tests the strong version of PPP, if real exchange rates is stationary, for 26 Latin American countries over the period of January 1981 to December 2003. In the panel data framework and unit root under multiple structural breaks the results indicate that the real exchange rate is stationary. Thus, the results provide convincing evidence that PPP holds in Latin-America in the post-1980 period. Using the panel cointegration approach, Cheng et al. (2008) investigate the validity of weak version of PPP por 61 countries (Latin American includes Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Jamaica, Mexico, Paraguay, Trinidad and Tobago, Uruguay, and Venezuela) over the period of January 1976 to December 2005. The empirical results suggest that weak PPP hold for a panel of Latin Americam contries.