Title: Investigating nonlinear purchasing power parity for EUR/PLN within Bayesian STVECM framework
Authors: Adrian Burda - Uniwersytet Ekonomiczny w Krakowie (Poland) [presenting]
Abstract: Existence of strong-form purchasing power (PPP), both for developed and emerging economies remains a widely investigated topics in international finance and macroeconomics. In case of Polish zloty, before the global financial crisis the existence strong-form PPP had been rejected in most studies, due to its appreciation against to main currencies, while after 2008 occurred more and more arguments supporting this hypothesis. The aim is to develop and apply to EUR/PLN a Bayesian procedure to investigate the purchasing power parity (PPP) in the exponential smooth transition vector error correction (ESTVECM) framework. The cointegrating relationship along with the nonlinearities caused by the departures from the long-run equilibrium is jointly estimated, by Gibbs sampler. For comparison purposes also simple linear vector error correction (VECM) with linear mechanism of error correction. The comparison of models is performed by posterior probability, and predictive density score, as well as a previous test. Usage of mentioned methods allows us to assess if taking into account complex structure of deviations from PPP could improve forecast accuracy of PPP model.