The purpose of this paper is to explore the topics relevant to the Purchasing Power Parity (PPP) and structural changes. Issues of testing structural changes of unknown timing, estimation of the timing of structural breaks, and distinguishing unit roots from structural breaks are investigated for the real exchange rates between the U.S. and Taiwan. Based on the Kuan and Chen (1994) test for the hypothesis of the existence of structural changes and on the Lee and Strazicich (1989) minimum LM test for unit root with breaks, we found that the real exchange rate is found to have two structural breaks and still exhibits a nonstationary process. In other words, evidence shows that the PPP between the U.S. and Taiwan does not hold even if structural changes are taken into consideration.
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