Testing Long-Run Ppp with Infinite-Variance Returns
AbstractThis paper investigates the long-run purchasing power parity hypothesis when exchange rate returns and inflation rates are assumed to be heavy-tailed stochastic processes. More specifically, residual-based and likelihood-ratio-based cointegration tests of PPP that explicitly allow for infinite-variance innovations are applied to monthly data (1973:1-1999:12) for Belgium, Canada, Denmark, France, Germany, Italy, Japan, the Netherlands, Norway, Spain, Sweden, and the United Kingdom. Our test results are marginally less supportive of PPP when the innovations are assumed to be infinite-variance, α-stable processes.
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Bibliographic InfoPaper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 10323.
Date of creation: 01 Jan 2003
Date of revision:
Publication status: Published in Journal of Applied Econometrics 2003, vol. 18 no. 4, pp. 471-484
Contact details of provider:
Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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Other versions of this item:
- Barry Falk & Chun-Hsuan Wang, 2003. "Testing long-run PPP with infinite-variance returns," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(4), pages 471-484.
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.:
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