Using a VECM to test exogeneity and forecastability in the PPP condition
AbstractThe possibility is explored that purchasing power parity (PPP) can be useful in forecasting exchange rates and/or prices. The first step shows that the spot exchange rate is statistically exogenous in the PPP relationship. The next step investigates the forecastability of the variables in the PPP condition. The results show that a VECM can beat a random walk only in the case of the US price level.
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Applied Financial Economics.
Volume (Year): 7 (1997)
Issue (Month): 1 ()
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- Woo, Kai-Yin, 1999. "Cointegration analysis of the intensity of the ERM currencies under the European Monetary System," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 9(4), pages 393-405, November.
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