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Econometric methods and purchasing power parity: short- and long-run PPP

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  • Francisco Maeso-Fernandez
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    Abstract

    This paper defines the different versions of the purchasing power parity and establishes the existing relationships between them in the light of econometric techniques. Monthly and annual data for real exchange rates are studied through a variance ratio test. Unlike other authors, it is found that there is not explosive behaviour in the real exchange rate when monthly data are used. Besides, stationarity is easily accepted using annual data. These results allow to reconcile the two main versions of the purchasing power parity and also explain why trade imbalances are persistent but not permanent.

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Economics.

    Volume (Year): 30 (1998)
    Issue (Month): 11 ()
    Pages: 1443-1457

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    Handle: RePEc:taf:applec:v:30:y:1998:i:11:p:1443-1457

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    Cited by:
    1. Alan M. Taylor, 2000. "Potential Pitfalls for the Purchasing-Power-Parity Puzzle? Sampling and Specification Biases in Mean-Reversion Tests of the Law of One Price," NBER Working Papers 7577, National Bureau of Economic Research, Inc.
    2. António Portugal Duarte, 2005. "Purchasing power parity: an empirical study of three EMU countries," International Trade 0505005, EconWPA.
    3. Venus Khim-Sen Liew & Kian-Ping Lim & Evan Lau & Chee-Keong Choong, 2003. "Exchange Rate – Relative Price Relationship: Nonlinear Evidence from Malaysia," International Finance 0312001, EconWPA.
    4. Venus Khim-Sen Liew & Chee-Keong Choong & Evan Lau & Kian-Ping Lim, 2005. "Exchange Rate – Relative Price Nonlinear Cointegration Relationship in Malaysia," Economics Bulletin, AccessEcon, vol. 6(11), pages 1-16.
    5. Yihui Lan, 2001. "The Explosion of Purchasing Power Parity," Economics Discussion / Working Papers 01-22, The University of Western Australia, Department of Economics.
    6. repec:ebl:ecbull:v:6:y:2005:i:11:p:1-16 is not listed on IDEAS

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