Testing Purchasing Power Parity under the Null Hypothesis of Co-Integration

Testing the Purchasing Power Parity in Pooled

In this paper we test the purchasing power parity for the post Bretton Woods period for 18 main industrial countries. As base currencies we use alternatively the Deutsche mark, the Japanese yen, and the US dollar. We employ error correction models for single countries and on the level of pooled equations allowing eecient inference on domestic and foreign price elasticities of nominal exchange r...

Nonlinear Adjustment Towards Purchasing Power Parity

Testing Purchasing Power Parity in the Long-Run

This paper studies the validity of the long-run purchasing parity hypothesis. The five currencies of interest in this study are the U.S. dollar, the U.K. pound sterling, the German mark, the French franc, and the Japanese yen. I attempt two approaches to test the long-run PPP hypothesis. First, I test for unit roots of the real exchange rates themselves. Second, I examine the cointegration rela...

The Purchasing Power Parity Debate

Our willingness to pay a certain price for foreign money must ultimately and essentially be due to the fact that this money possesses a purchasing power as against commodities and services in that country. On the other hand, when we offer so and so much of our own money, we are actually offering a purchasing power as against commodities and services in our own country. Our valuation of a foreig...

A note on testing for purchasing power parity∗

We examine the asymptotic behavior of unit root tests against nonlinear alternatives of the exponential smooth transition type if the data is erroneously nonlinearly transformed. We show analytically and by a Monte Carlo study that the probability of rejecting the correct null of a random walk depends heavily on the type of data transformation. JEL-Numbers: C12, C22, F31