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Cointegration of price measures: Evidence from the G-7

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  • Kay Strong
  • Subhash Sharma

Abstract

This study addresses index-dependency of empirical results associated with the purchasing power parity (PPP) relationship. Using four key price indices involving the G-7 nations, empirical tests for long-run co-movement are conducted. A test for linear restrictions is imposed. The speeds of adjustment are calculated for statistically significant linear combinations. The speed of the short-run response to disequilibrium differs both within and across countries. The seven-country average reveals that the CPI has the quickest recovery response to a one-time disturbance. The findings suggest that PPP results are not dependent upon the choice of index when an explicit set of indices is cointegrated.(JEL F3) Copyright Springer 2002

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  • Kay Strong & Subhash Sharma, 2002. "Cointegration of price measures: Evidence from the G-7," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 26(1), pages 111-122, March.
    • Handle: RePEc:spr:jecfin:v:26:y:2002:i:1:p:111-122
    DOI: 10.1007/BF02744456
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    References listed on IDEAS

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    5. Francisco Maeso-Fernandez, 1998. "Econometric methods and purchasing power parity: short- and long-run PPP," Applied Economics, Taylor & Francis Journals, vol. 30(11), pages 1443-1457.
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    7. Levich, Richard M., 1985. "Empirical studies of exchange rates: Price behavior, rate determination and market efficiency," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 19, pages 979-1040, Elsevier.
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    Cited by:

    1. Bangun WIDOYOKO & Ely SISWANTO & F. Danardana MURWANI, 2018. "Determining the Exchange Rate: Purchasing Power Parity - PPP," Expert Journal of Finance, Sprint Investify, vol. 6(1), pages 12-15.
    2. Carmen Mar? Mart?ez, 2003. "The Structural Approach of a Natrex Model on Equilibrium Exchange Rates," UFAE and IAE Working Papers 588.03, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).

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