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A cointegration analysis of purchasing power parity: 1973–96

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  • Miguel Ramirez
  • Shahryar Khan

Abstract

This paper tests the purchasing power parity (PPP) hypothesis for five industrial countries using cointegration and error-correction modeling. The cointegration test indicated that for all countries the PPP hypothesis holds in the long run but not in the short run. Further, the errorcorrection models suggested that deviations of the actual exchange rate from its long-run PPP value were corrected in subsequent periods. Finally, the high frequency monthly data models did a better job of tracking the turning points of the actual data than the low-frequency quarterly and yearly models. Copyright International Atlantic Economic Society 1999

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  • Miguel Ramirez & Shahryar Khan, 1999. "A cointegration analysis of purchasing power parity: 1973–96," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 5(3), pages 369-385, August.
    • Handle: RePEc:kap:iaecre:v:5:y:1999:i:3:p:369-385:10.1007/bf02296418
    DOI: 10.1007/BF02296418
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    References listed on IDEAS

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    1. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
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    Cited by:

    1. Steven Yee & Miguel D. Ramirez, 2016. "Purchasing Power Parity: A Time Series Analysis of the U.S. and Mexico, 1995–2007," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 22(4), pages 409-419, November.
    2. Martin Mandel & Vladimír Tomšík, 2008. "Relativní verze teorie parity kupní síly: problémy empirické verifikace [Relative version of the theory of purchasing power parity: problems of empirical verification]," Politická ekonomie, Prague University of Economics and Business, vol. 2008(6), pages 723-738.
    3. Guneratne Banda Wickremasinghe, 2004. "The Sri Lankan Rupee and Purchasing Power Parity during the Current Floating Period," International Trade 0406005, University Library of Munich, Germany.

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