The effect of the single currency on the Purchasing Power Parity (PPP) hypothesis is examined in this study for the 15 EU countries, vis a vis the US dollar, before and after the advent of the euro. Standard as well as nonlinear unit root tests are employed on the time series dimension. Unit root tests reject PPP and the highest half-lives are observed after the introduction of the single curre...

This paper analyzes the mean reversion and unit root properties of general diffusion models and their discrete samples. In particular, we find that the Dickey-Fuller unit root test applied to discrete samples from a diffusion model becomes a test of no mean reversion rather than a unit root, or more generally, nonstationarity in the underlying diffusion. The unit root test has a well defined li...