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  • Evidence on PPP from a cointegration test with multiple structural breaks

    Author(s)
    Narayan, Paresh
    Narayan, Seema
    Prasad, Arti
    Griffith University Author(s)
    Narayan, Paresh
    Year published
    2009
    Metadata
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    Abstract
    Despite a plethora of studies on purchasing power parity (PPP), those that take a cointegration approach have found mixed evidence on PPP. The goal of this article is to obviate existing tensions in the PPP literature by using a simple test for cointegration between nominal exchange rate and relative prices that accounts for multiple structural breaks. We find that for 14 out of 15 OECD countries, there is evidence of a cointegration relationship between nominal exchange rate and relative prices at the 5% level. Only for Japan, we find evidence for cointegration at the 2.5% level. These results suggest overwhelming evidence ...
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    Despite a plethora of studies on purchasing power parity (PPP), those that take a cointegration approach have found mixed evidence on PPP. The goal of this article is to obviate existing tensions in the PPP literature by using a simple test for cointegration between nominal exchange rate and relative prices that accounts for multiple structural breaks. We find that for 14 out of 15 OECD countries, there is evidence of a cointegration relationship between nominal exchange rate and relative prices at the 5% level. Only for Japan, we find evidence for cointegration at the 2.5% level. These results suggest overwhelming evidence of support for PPP for the OECD countries.
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    Journal Title
    Applied Economics Letters
    Volume
    16
    Issue
    1
    DOI
    https://doi.org/10.1080/13504850701222160
    Subject
    Applied Economics not elsewhere classified
    Public Health and Health Services
    Applied Economics
    Banking, Finance and Investment
    Publication URI
    http://hdl.handle.net/10072/30499
    Collection
    • Journal articles

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