Testing long-run PPP with infinite-variance returns
AbstractThis paper investigates the long-run purchasing power parity hypothesis when exchange rate returns and inflation rates are assumed to be heavy-tailed stochastic processes. More specifically, residual-based and likelihood-ratio-based cointegration tests of PPP that explicitly allow for infinite-variance innovations are applied to monthly data (1973:1-1999:12) for Belgium, Canada, Denmark, France, Germany, Italy, Japan, the Netherlands, Norway, Spain, Sweden, and the United Kingdom. Our test results are marginally less supportive of PPP when the innovations are assumed to be infinite-variance, α-stable processes. Copyright Â© 2003 John Wiley & Sons, Ltd.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.
Volume (Year): 18 (2003)
Issue (Month): 4 ()
Contact details of provider:
Web page: http://www.interscience.wiley.com/jpages/0883-7252/
Other versions of this item:
- Falk, Barry L. & Wang, Chun-Hsuan, 2003. "Testing Long-Run Ppp with Infinite-Variance Returns," Staff General Research Papers 10323, Iowa State University, Department of Economics.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Peter Kugler & Carlos Lenz, 1990.
"Multivariate Cointegration Analysis and the Long-run Validity of PPP,"
dp9004, Universitaet Bern, Departement Volkswirtschaft.
- Kugler, Peter & Lenz, Carlos, 1993. "Multivariate Cointegration Analysis and the Long-Run Validity of PPP," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 180-84, February.
- Pesavento, Elena, 2000. "Analytical Evaluation of the Power of Tests for the Absence of Cointegration," University of California at San Diego, Economics Working Paper Series qt4cq4773c, Department of Economics, UC San Diego.
- Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
- Peter C.B. Phillips & Sam Ouliaris, 1987.
"Asymptotic Properties of Residual Based Tests for Cointegration,"
Cowles Foundation Discussion Papers
847R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1988.
- Phillips, Peter C B & Ouliaris, S, 1990. "Asymptotic Properties of Residual Based Tests for Cointegration," Econometrica, Econometric Society, vol. 58(1), pages 165-93, January.
- Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
- R Macdonald, .
"Long Run Purchasing Power Parity: Is It For Real?,"
Dundee Discussion Papers in Economics
029, Economic Studies, University of Dundee.
- Mark P. Taylor & Ronald MacDonald, 1991.
"Exchange Rate Economics: A Survey,"
IMF Working Papers
91/62, International Monetary Fund.
- Patel, Jayendu, 1990. "Purchasing Power Parity as a Long-Run Relation," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 5(4), pages 367-79, Oct.-Dec..
- Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-72, August.
- Caner, Mehmet, 1998. "Tests for cointegration with infinite variance errors," Journal of Econometrics, Elsevier, vol. 86(1), pages 155-175, June.
- Lucas, André, 1997. "Cointegration Testing Using Pseudolikelihood Ratio Tests," Econometric Theory, Cambridge University Press, vol. 13(02), pages 149-169, April.
- Koedijk, C.G. & Kool, C.J.M., 1992.
"Tail estimates of East European exchange rates,"
Open Access publications from Tilburg University
urn:nbn:nl:ui:12-3108733, Tilburg University.
- Haug, Alfred A., 1996.
"Tests for cointegration a Monte Carlo comparison,"
Journal of Econometrics,
Elsevier, vol. 71(1-2), pages 89-115.
- Pesavento, Elena, 2004. "Analytical evaluation of the power of tests for the absence of cointegration," Journal of Econometrics, Elsevier, vol. 122(2), pages 349-384, October.
- Phillips, P C B, 1987.
"Time Series Regression with a Unit Root,"
Econometric Society, vol. 55(2), pages 277-301, March.
- Peter C.B. Phillips, 1985. "Time Series Regression with a Unit Root," Cowles Foundation Discussion Papers 740R, Cowles Foundation for Research in Economics, Yale University, revised Feb 1986.
- Tom Doan, . "PPUNIT: RATS procedure to perform Phillips-Perron Unit Root test," Statistical Software Components RTS00160, Boston College Department of Economics.
- Cheung, Yin-Wong & Lai, Kon S., 1993. "Long-run purchasing power parity during the recent float," Journal of International Economics, Elsevier, vol. 34(1-2), pages 181-192, February.
- Enders, Walter, 1988. "ARIMA and Cointegration Tests of PPP under Fixed and Flexible Exchange Rate Regimes," The Review of Economics and Statistics, MIT Press, vol. 70(3), pages 504-08, August.
- Franses, Philip Hans & Lucas, Andre, 1998. "Outlier Detection in Cointegration Analysis," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(4), pages 459-68, October.
- Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
- Akgiray, Vedat & Geoffrey Booth, G. & Seifert, Bruce, 1988. "Distribution properties of Latin American black market exchange rates," Journal of International Money and Finance, Elsevier, vol. 7(1), pages 37-48, March.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Boswijk, Peter & Franses, Philip Hans, 1992. "Dynamic Specification and Cointegration," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 369-81, August.
- Jonathan B. Hill, 2004.
"Strong Orthogonal Decompositions and Non-Linear Impulse Response Functions for Infinite Variance Processes,"
0401001, EconWPA, revised 22 Apr 2004.
- Jonathan B. Hill, 2004. "Strong Orthogonal Decompositions and Nonlinear Impulse Response Functions for Infinite-Variance Processes," Working Papers 0408, Florida International University, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If references are entirely missing, you can add them using this form.