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Random walks and cointegration relationships in international parity conditions between Germany and USA for the post Bretton-Woods period

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  • Bevilacqua, Franco

    (United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology)

Abstract

This paper is based on a recent paper by Juselius and MacDonald (2000, 2003) and two `Journal of Econometrics' article s by Juselius (1995) and Johansen and Juselius (1992). The basic feature in all these articles is that the joint modelling of international parity conditions, namely ppp and uip, produces stationary relations showing an important interaction between the goods and the capital markets. We replaced the consumer price index (CPI) considered by Juselius and MacDonald with the producer price index (PPI) to check whether the international parity relationships still cointegrate. To our surprise we outstandingly produced similar results to those by Juselius and MacDonald, suggesting that the cointegration relationships in the international parity conditions hold also if we use different measures of prices. What is striking in our results is that even if there is no direct cointegration relation between CPI and PPI both in Germany and USA, the cointegration relation found between ppp and uip still holds notwithstanding of how ppp is measured.

Suggested Citation

  • Bevilacqua, Franco, 2006. "Random walks and cointegration relationships in international parity conditions between Germany and USA for the post Bretton-Woods period," MERIT Working Papers 2006-012, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    • Handle: RePEc:unm:unumer:2006012
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    Cited by:

    1. Jaramillo Franco, Miguel & Serván Lozano, Sergio, 2012. "Modeling exchange rate dynamics in Peru: A cointegration approach using the UIP and PPP," MPRA Paper 70772, University Library of Munich, Germany.
    2. Bevilacqua, Franco, 2006. "Random walks and cointegration relationships in international parity conditions between Germany and USA for the Bretton-Woods period," MERIT Working Papers 2006-016, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

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    More about this item

    Keywords

    ppp; uip; Fisher parity;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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