NONLINEAR THRESHOLD UNIT ROOT TEST AND PPP IN TRANSITION COUNTRIES.

This study applies the threshold autoregressive (TAR) method proposed by Caner and Hansen (2001) to test the validity of long-run purchasing power parity (PPP) in 14 transition countries, using monthly real effective exchange rates over the period January 1994- June 2012. The empirical results indicate that PPP holds only in five countries (i.e., Cyprus, Lithuania, Latvia, Poland, and Slovenia). Furthermore, we found that the adjustment toward PPP is nonlinear. [ABSTRACT FROM AUTHOR]