Colombian Purchasing Power Parity Analysed Using A Framework of Multivariate Cointegration
AbstractThis paper tests for purchasing power parity (PPP) between Colombia and its main trading partners using the Johansen framework of multivariate cointegration. The tests shows that PPP does not hold in the strong sense, but a clear purchasing power relationship is, nevertheless, shown to exist. The model is, furthermore, shown to have significant forecasting power. It outperforms a random walk in out-of-sample forecasting on the 12 and 24-month horizon but not on the 3 and 6-month horizon.
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Bibliographic InfoPaper provided by BANCO DE LA REPÚBLICA in its series BORRADORES DE ECONOMIA with number 002150.
Date of creation: 31 Aug 2003
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