Purchasing Power Parity, Unit Roots and Dynamic StructureJournal of Empirical Finance (1996)
AbstractRecent studies of puchasing power parity (PPP) account for the possible presence of unit roots in nominal exchange rates and relative price indicies by applying standard unit-root tests to real exchange rates, which are ratios of nominal exchange rates and relative price indicies. These studies occasionally find evidence of PPP but, as a whole, the evidence is not definitive. Standard unit-root tests impose a restrictive dynamic structure between nominal exchange rates and relative price indicies. I specify and estimate a generalized dynamic structure. I reject the dynamic restrictions implicit in standard unit-root tests of PPP, and find stronger evidence of PPP than do most other recent studies.
- error correction,
- purchasing power parity,
- unit root
Citation InformationDouglas G Steigerwald. "Purchasing Power Parity, Unit Roots and Dynamic Structure" Journal of Empirical Finance Vol. 2 Iss. 4 (1996)
Available at: http://works.bepress.com/douglas_steigerwald/14/