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International parity relations between Poland and Germany: a cointegrated VAR approach

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  • Stazka, Agnieszka

Abstract

This paper analyses empirically the purchasing power parity, the uncovered interest parity and the real interest parity (Fisher parity) between Poland and Germany. The international parity relations are investigated jointly within the cointegrated VAR framework. Our analysis fails to find evidence that the parities, or any linear combinations of them, hold for our data set. We identify two long-run equilibrium relations: one imposing a long-run homogeneity restriction on the domestic (i.e. Polish) and foreign (i.e. German) inflation and the domestic interest rate and one that brings together the domestic real interest rate and the foreign inflation. Another interesting result is the weak exogeneity of the deviation of the real exchange rate from the PPP and the strong exogeneity of the German interest rate.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24057.

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Date of creation: Mar 2008
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Handle: RePEc:pra:mprapa:24057

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Keywords: cointegrated VAR; PPP; UIP; Fisher parity; Poland;

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  1. Bayoumi, Tamim & Eichengreen, Barry, 1992. "Shocking Aspects of European Monetary Unification," CEPR Discussion Papers 643, C.E.P.R. Discussion Papers.
  2. Tamim Bayoumi and Barry Eichengreen., 1992. "Is There a Conflict Between EC Enlargement and European Monetary Unification?," Economics Working Papers, University of California at Berkeley 92-188, University of California at Berkeley.
  3. Juselius, Katarina, 1995. "Do purchasing power parity and uncovered interest rate parity hold in the long run? An example of likelihood inference in a multivariate time-series model," Journal of Econometrics, Elsevier, vol. 69(1), pages 211-240, September.
  4. Jean-Christian Lambelet & Alexander Mihailov, 2006. "The Triple-Parity Law," Computing in Economics and Finance 2006 33, Society for Computational Economics.
  5. Bayoumi, Tamim & Eichengreen, Barry, 1992. "Shocking Aspects of Monetary Unification," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt791143kp, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  6. Johansen, Søren & Juselius, Katarina, 1992. "Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 211-244.
  7. Dimitrios Sideris, 2006. "Purchasing Power Parity in economies in transition: evidence from Central and East European countries," Applied Financial Economics, Taylor & Francis Journals, vol. 16(1-2), pages 135-143.
  8. Ronald Mac Donald, 1998. "What Do We Really Know About Real Exchange Rates?," Working Papers 28, Oesterreichische Nationalbank (Austrian Central Bank).
  9. Nikolaos Giannellis & Athanasios P. Papadopoulos, 2007. "Purchasing Power Parity among developing countries and their trade-partners. Evidence from selected CEECs and Implications for their membership of EU," Money Macro and Finance (MMF) Research Group Conference 2006 55, Money Macro and Finance Research Group.
  10. Francesco Paolo Mongelli, 2005. "What is European Economic and Monetary Union Telling us About the Properties of Optimum Currency Areas?," Journal of Common Market Studies, Wiley Blackwell, vol. 43(3), pages 607-635, 09.
  11. Juselius, Katarina, 2006. "The Cointegrated VAR Model: Methodology and Applications," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780199285679, October.
  12. Davidson, James, 1998. "Structural relations, cointegration and identification: some simple results and their application," Journal of Econometrics, Elsevier, vol. 87(1), pages 87-113, August.
  13. Abhisek Banerjee & Manmohan Singh, 2006. "Testing Real Interest Parity in Emerging Markets," IMF Working Papers 06/249, International Monetary Fund.
  14. Jani Bekő & Darja Borsic, 2007. "Purchasing Power Parity in Transition Economies: Does It Hold in the Czech Republic, Hungary and Slovenia?," Post-Communist Economies, Taylor & Francis Journals, vol. 19(4), pages 417-432.
  15. Juselius, Katarina & MacDonald, Ronald, 2004. "International parity relationships between the USA and Japan," Japan and the World Economy, Elsevier, vol. 16(1), pages 17-34, January.
  16. Johansen, Soren, 1995. "Identifying restrictions of linear equations with applications to simultaneous equations and cointegration," Journal of Econometrics, Elsevier, vol. 69(1), pages 111-132, September.
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