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PPP over a century: cointegration and structural change

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  • Ekaterini Panopoulou

Abstract

The purpose of this article is to investigate the ability of parameter instability tests in regressions with I(1) processes to discriminate between changes in the cointegrating relationship and in the marginal distribution of the regressors. Using annual data for the G-7 countries and the purchasing power parity (PPP), we conclude that the regression coefficient between the price level differential and the exchange rate has indeed remained stable during the 20th century and find ample evidence supporting the PPP.

Suggested Citation

  • Ekaterini Panopoulou, 2007. "PPP over a century: cointegration and structural change," Applied Financial Economics Letters, Taylor & Francis Journals, vol. 3(5), pages 319-325.
  • Handle: RePEc:taf:raflxx:v:3:y:2007:i:5:p:319-325
    DOI: 10.1080/17446540701222342
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