Testing Purchasing Power Parity in the Long-Run
نویسنده
چکیده
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 relationship between the foreign dollar price level and the Canadian price level. Results show that the long-run PPP hypothesis cannot be confirmed.
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