order XL184 Because of the presence of endogenous regressors

Because of the presence of endogenous regressors, the method used to test structural breaks in the CBB\'s reaction function parameters will be the one developed by Perron and Yamamoto (2015). The procedures proposed by those authors are based on the estimation by ordinary least squares (OLS) and by instrumental variables (IV), which allows estimating structural break dates and running tests for checking whether these breaks are statistically significant. In addition to this introduction, this paper is organized into another four sections. Section 2 introduces the structural macroeconomic model and the monetary authority\'s optimization problem that serves as the theoretical basis for this study. Section 3 describes the empirical method used to estimate the CBB\'s reduced-form reaction function and checks for the presence of structural breaks in the coefficients of this equation. Section 4 presents the results. Section 5 concludes.
Theoretical model
Econometric methodology In this section, we derive the reduced form for the robust interest rate rule to be estimated, in order to check for nonlinearities in the CBB\'s monetary policy conduct resulting from the specification errors mentioned in Section 2. Moreover, we present the estimation methods and the structural break tests used to verify the stability of coefficients in the monetary rule and the data to be used in the study.
Results
Conclusion Due to the presence of potentially endogenous regressors in the reaction function, the method used to test structural breaks in the CBB\'s reaction function parameters was developed by Perron and Yamamoto (2015). The procedure proposed by these authors is based on the estimation of the model by OLS and IV, which allows estimating the structural break dates and running tests to verify whether these breaks are statistically significant.
Introduction The order XL184 that changes in the long-term nominal exchange rate follow a difference in the relative prices of two countries, i.e. the hypothesis of purchasing power parity (PPP), is a cornerstone of a series of macroeconomic models and has been a controversial topic in empirical terms in international economics (Sarno, 2005). Another issue regarding the importance of the study of PPP would be the use of PPP as a reference for the real exchange rate of long-term equilibrium, which would allow the assessment of the degree of misalignment of the real exchange rate. Moreover, the validity of the PPP hypothesis is required for the comparison of real income between countries. Empirical studies of the validity of the PPP hypothesis developed pari passu with the advancement of econometric techniques. In the 1980s, the unit root test of the real exchange rate and the real effective exchange rate using the approach of Dickey and Fuller was the standard approach. However, this unit root test suffered from low power (Enders and Granger, 1998; Lothian and Taylor, 1996). To solve the problem of the low power of the traditional unit root tests, a strategy involving the use of long-span data was considered (Taylor, 2002). However, the use of data over a time span as long as a century suffers from the existence of changes in exchange rate regimes; among other problems are real shocks that can cause structural breaks or changes in the exchange rate equilibrium. Recent developments in econometrics panel data have been employed in the empirical tests of the PPP hypothesis. A potential problem with the panel unit root test is that the null hypothesis of this test is usually that all the series are generated by unit root process (Taylor et al., 2001). To overcome this potential problem of the panel unit root test, the use of the seemingly unrelated regressions augmented Dickey–Fuller panel (SURADF), which investigates the null hypothesis of a unit root for the panel and separately for each individual panel, has grown. The SURADF panel identifies how many and which series in the panel are a stationary process (He et al., 2014).