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Inflation, Exchange Rates and PPP in a Multivariate Panel Cointegration Model

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  • Tor Jacobson
  • Johan Lyhagen

    ()
    (Department of Economic Statistics, Stockholm School of Economics)

  • Rolf Larsson
  • Marianne Nessén

Abstract

New multivariate panel cointegration methods are used to analyze nominal exchange rates and prices in the four major economic powers in Europe, France, Germany, Italy and Great Britain for the post- Bretton Woods period. We test for PPP and find that the theoretical PPP relationship does not hold but there is a similar (1,-1.5,0.9 instead of 1,-1,1) relationship which is common for the investigated countries. Parametric bootstrap inference is used to deal with badly small sample sized tests.

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Bibliographic Info

Paper provided by International Conferences on Panel Data in its series 10th International Conference on Panel Data, Berlin, July 5-6, 2002 with number D4-2.

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Date of creation: Mar 2002
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Handle: RePEc:cpd:pd2002:d4-2

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Keywords: Long-run purchasing power parity; multivariate cointegration analysis; bootstrap inference.;

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References

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  3. Rolf Larsson & Johan Lyhagen, 2000. "Likelihood-Based Inference in Multivariate Panel Cointegration Models," Econometric Society World Congress 2000 Contributed Papers 1313, Econometric Society.
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Citations

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Cited by:
  1. Brissimis, Sophocles N. & Kosma, Theodora, 2005. "Market power, innovative activity and exchange rate pass-through in the euro area," Working Paper Series 0531, European Central Bank.
  2. Hwa-Taek Lee & Gawon Yoon, 2013. "Does purchasing power parity hold sometimes? Regime switching in real exchange rates," Applied Economics, Taylor & Francis Journals, vol. 45(16), pages 2279-2294, June.
  3. Carlsson, Mikael & Lyhagen, Johan & Österholm, Pär, 2007. "Testing for Purchasing Power Parity in Cointegrated Panels," Working Paper Series 2008:1, Uppsala University, Department of Economics.
  4. Piotr Kębłowski, 2011. "The Behaviour of Exchange Rates in the Central European Countries and Credit Default Risk Premiums," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 3(4), pages 221-236, December.
  5. Miguel de Carvalho & Paulo Julio, 2010. "Digging Out the PPP Hypothesis: an Integrated Empirical Coverage," GEE Papers 0024, Gabinete de Estratégia e Estudos, Ministério da Economia e da Inovação, revised Sep 2010.
  6. Laaksonen-Craig, Susanna, 2004. "Foreign direct investments in the forest sector: implications for sustainable forest management in developed and developing countries," Forest Policy and Economics, Elsevier, vol. 6(3-4), pages 359-370, June.
  7. Federico Marongiu, 2004. "Devaluación e Inflacion en Argentina despues de la Convertibilidad," Macroeconomics 0404013, EconWPA.
  8. In Choi, 2013. "Panel Cointegration," Working Papers 1208, Research Institute for Market Economy, Sogang University.
  9. Ritesh Kumar Mishra & Sanjay Sehgal, 2011. "Exchange rates and prices in purchasing power parity framework: Are bilateral real exchange rates stationary?," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 4(3), pages 274-286.

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