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Purchasing power parity and market frictions: a neutral band analysis

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  • Phillip Lawler
  • Neil Manning

Abstract

The paper employs a simple threshold model of US bilateral real exchange rate dynamics. The econometric results appear consistent with the existence of a 'neutral band'. Real exchange rates seem to revert to purchasing power parity (PPP) levels only outside the neutral band.

Suggested Citation

  • Phillip Lawler & Neil Manning, 1994. "Purchasing power parity and market frictions: a neutral band analysis," Applied Economics Letters, Taylor & Francis Journals, vol. 1(12), pages 230-232.
    • Handle: RePEc:taf:apeclt:v:1:y:1994:i:12:p:230-232
    DOI: 10.1080/135048594357808
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    References listed on IDEAS

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    1. Corbae, Dean & Ouliaris, Sam, 1988. "Cointegration and Tests of Purchasing Power Parity," The Review of Economics and Statistics, MIT Press, vol. 70(3), pages 508-511, August.
    2. Fisher, Eric O'N & Park, Joon Y, 1991. "Testing Purchasing Power Parity under the Null Hypothesis of Co-integration," Economic Journal, Royal Economic Society, vol. 101(409), pages 1476-1484, November.
    3. Adler, Michael & Lehmann, Bruce, 1983. "Deviations from Purchasing Power Parity in the Long Run," Journal of Finance, American Finance Association, vol. 38(5), pages 1471-1487, December.
    4. Enders, Walter, 1988. "ARIMA and Cointegration Tests of PPP under Fixed and Flexible Exchange Rate Regimes," The Review of Economics and Statistics, MIT Press, vol. 70(3), pages 504-508, August.
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