Su Zhou (University of Texas at San Antonio) Mohsen Bahmani-Oskooee (University of Wiscosin-milwakee) Aali M. Kutan (Southern Illinois University Edwardsville and the Center for eurpean Integration Studies (ZEI))
Abstract
This paper examines the purchasing power parity (PPP) hypothesis for the post-Bretton Woods era including the period after the introduction of the euro. The study applies a new nonlinear unit root test to the bilateral real exchange rates of both European and other industrial countries with the French franc and German mark (and the euro after 1998), as well as the US dollar as numeraire currencies. The results of the study provide stronger support for PPP than any earlier studies of bilateral PPP for industrial countries and suggest that (1) PPP tends to hold well within the European Union (EU) even before the adoption of the euro, (2) the evidence for PPP becomes more significant for both EU and non-EU countries when the sample period is extended to the euro era, and (3) convergence toward PPP between the EU countries, especially between the euro-area countries, tends to be nonlinear, while it is likely to be linear for the non-EU industrial countries
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Publisher Info
Paper provided by College of Business, University of Texas at San Antonio in its series Working Papers with number
0031.
Find related papers by JEL classification: F31 - International Economics - - International Finance - - - Foreign Exchange F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions G15 - Financial Economics - - General Financial Markets - - - International Financial Markets C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
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