PPP over a century: Co-integration and structural change

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PPP over a century: Co-integration and structural change

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Ekaterini Panopoulou () (Economics, National University of Ireland, Maynooth)

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Ekaterini Panopoulou

Abstract

The purpose of this paper is to investigate the ability of parameter instability tests in regressions with 1(1) processes to discriminate between changes in the cointegrating relationship and changes in the marginal distribution of the regressors. Using annual data for the G-7 countries and the Purchasing Power Parity, we conclude that the regression coefficient between the price level differential and the exchange rate has indeed remained stable during the 20th century and find ample evidence supporting the PPP.

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Paper provided by Department of Economics, Finance and Accounting, National University of Ireland - Maynooth in its series Economics, Finance and Accounting Department Working Paper Series with number n1650306.

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Length: 8 pages
Date of creation: 2006
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Handle: RePEc:may:mayecw:n1650306

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Article
- Ekaterini Panopoulou, 2007. "PPP over a century: cointegration and structural change," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 3(5), pages 319-325. [Downloadable!] (restricted)

Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions

References listed on IDEAS
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Hansen, Bruce E., 2000. "Testing for structural change in conditional models," Journal of Econometrics, Elsevier, vol. 97(1), pages 93-115, July. [Downloadable!] (restricted)
Other versions:
- Bruce E. Hansen, 1998. "Testing for Structural Change in Conditional Models," Boston College Working Papers in Economics 310., Boston College Department of Economics. [Downloadable!]
Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November. [Downloadable!] (restricted)
Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-58, May. [Downloadable!] (restricted)
Other versions:
- Donald W.K. Andrews, 1988. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Cowles Foundation Discussion Papers 877R, Cowles Foundation, Yale University, revised Jul 1989. [Downloadable!]
Pierre Perron, 2005. "Dealing with Structural Breaks," Boston University - Department of Economics - Working Papers Series WP2005-017, Boston University - Department of Economics. [Downloadable!]
Andrews, Donald W K, 1993. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Econometrica, Econometric Society, vol. 61(4), pages 821-56, July. [Downloadable!] (restricted)
Other versions:
- Donald W.K. Andrews, 1990. "Tests for Parameter Instability and Structural Change with Unknown Change Point," Cowles Foundation Discussion Papers 943, Cowles Foundation, Yale University. [Downloadable!]

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