Purchasing power parity: A nonlinear multivariate perspective
AbstractThe goal of this paper is to disentangle the respective contributions of the nominal exchange rate and the price differential to the adjustment towards the Purchasing Power Parity relation. To this end, we estimate a multivariate threshold vector equilibrium correction model, whose dynamics is consistent with the PPP in presence of trading costs. European data support the relevance of this model for Belgium, France and Italy, but this is not the case for the G7 data against the US Dollar. Furthermore, the adjustment in European countries seems to have been achieved only through nominal exchange rate changes.
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Bibliographic InfoArticle provided by AccessEcon in its journal Economics Bulletin.
Volume (Year): 6 (2008)
Issue (Month): 39 ()
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Find related papers by JEL classification:
- F3 - International Economics - - International Finance
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
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