Convergence to Purchasing Power Parity at the Commencement of the Euro

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Convergence to Purchasing Power Parity at the Commencement of the Euro

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Claude Lopez ()
David H. Papell

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Abstract

We investigate convergence towards Purchasing Power Parity (PPP) within the Euro Zone and between the Euro Zone and its main partners using panel data methods that incorporate serial and contemporaneous correlation. We find strong rejections of the unit root hypothesis, and therefore evidence of PPP, in the Euro Zone for different numeraire currencies, as well as in the Euro Zone plus the United States, with the US dollar as the numeraire currency, starting between 1996 and 1999. The process of convergence towards PPP, however, begins earlier, generally in 1992 or 1993 following the adoption of the Maastricht Treaty.

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Paper provided by University of Cincinnati, Department of Economics in its series University of Cincinnati, Economics Working Papers Series with number 2003-08.

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Length: 19 pages
Date of creation: Oct 2003
Date of revision:
Handle: RePEc:cin:ucecwp:2003-08

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Article
- Claude Lopez & David H. Papell, 2007. "Convergence to Purchasing Power Parity at the Commencement of the Euro," Review of International Economics, Blackwell Publishing, vol. 15(1), pages 1-16, 02. [Downloadable!] (restricted)
Paper
- Claude Lopez & David H. Papell, 2003. "Convergence to Purchasing Power Parity at the Commencement of the Euro," Macroeconomics 0310008, EconWPA. [Downloadable!]

This paper has been announced in the following NEP Reports:

NEP-ALL-2004-01-05 (All new papers)
NEP-EEC-2004-01-05 (European Economics)
NEP-IFN-2004-01-08 (International Finance)
NEP-MAC-2004-01-05 (Macroeconomics)
NEP-MON-2004-01-05 (Monetary Economics)
NEP-RMG-2004-01-05 (Risk Management)

References listed on IDEAS
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.:

John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know About Unit Roots," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 141-220 National Bureau of Economic Research, Inc. [Downloadable!]
Other versions:
- John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know About Unit Roots," NBER Technical Working Papers 0100, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
- Campbell, J.Y. & Perron, P., 1991. "Pitfalls and Opportunities: What Macroeconomics should know about unit roots," Papers 360, Princeton, Department of Economics - Econometric Research Program.
Abuaf, Niso & Jorion, Philippe, 1990. " Purchasing Power Parity in the Long Run," Journal of Finance, American Finance Association, vol. 45(1), pages 157-74, March. [Downloadable!] (restricted)
Graham Elliott & Elena Pesavento, 2005. "Higher Power Tests for Bilateral Failure of PPP after 1973," Emory Economics 0502, Department of Economics, Emory University (Atlanta). [Downloadable!]
Frankel, Jeffrey A. & Rose, Andrew K., 1996. "A panel project on purchasing power parity: Mean reversion within and between countries," Journal of International Economics, Elsevier, vol. 40(1-2), pages 209-224, February. [Downloadable!] (restricted)
Other versions:
- Jeffrey A. Frankel & Andrew K. Rose, 1995. "A Panel Project on Purchasing Power Parity: Mean Reversion Within and Between Countries," NBER Working Papers 5006, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
- Jeffrey A. Frankel and Andrew K. Rose., 1995. "A Panel Project on Purchasing Power Parity: Mean Reversion Within and Between Countries," Center for International and Development Economics Research (CIDER) Working Papers C95-052, University of California at Berkeley.
- Frankel, Jeffrey A & Rose, Andrew K, 1995. "A Panel Project on Purchasing Power Parity: Mean Reversion Within and Between Countries," CEPR Discussion Papers 1128, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)

Full references

Cited by:
(explanations, 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.)

Bartram, Sohnke M. & Karolyi, G. Andrew, 2004. "The Impact of the Introduction of the Euro on Foreign Exchange Rate Risk Exposures," Working Paper Series 2005-3, Ohio State University, Charles A. Dice Center for Research in Financial Economics. [Downloadable!]
Other versions:
- Sohnke M. Bartram & G. Andrew Karolyi, 2002. "The Impact of the Introduction of the Euro on Foreign Exchange Rate Risk Exposures," Finance 0207005, EconWPA, revised 16 Sep 2002. [Downloadable!]
- Bartram, Sohnke M. & Karolyi, G. Andrew, 2006. "The impact of the introduction of the Euro on foreign exchange rate risk exposures," Journal of Empirical Finance, Elsevier, vol. 13(4-5), pages 519-549, October. [Downloadable!] (restricted)
Claude Lopez, 2004. "Evidence of Purchasing Power Parity for the Floating Regime Period," University of Cincinnati, Economics Working Papers Series 2004-01, University of Cincinnati, Department of Economics, revised Mar 2006. [Downloadable!]
Other versions:
- Lopez, Claude, 2008. "Evidence of purchasing power parity for the floating regime period," Journal of International Money and Finance, Elsevier, vol. 27(1), pages 156-164, February. [Downloadable!] (restricted)
Dick van Dijk & Haris Munandar & Christian M. Hafner, 2005. "The Euro Introduction and Non-Euro Currencies," Tinbergen Institute Discussion Papers 05-044/4, Tinbergen Institute, revised 08 Jun 2006. [Downloadable!]

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