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Long-Run PPP May Not Hold After All

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  • Engel, C.

Abstract

Recent tests using long data series find evidence in favor of long-run PPP (by rejecting either the null hypothesis of unit roots in real exchange rates and relative prices.)

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Bibliographic Info

Paper provided by University of Washington, Department of Economics in its series Working Papers with number 96-05.

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Length: 32 pages
Date of creation: 1996
Date of revision:
Handle: RePEc:udb:wpaper:96-05

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Web page: http://www.econ.washington.edu/
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Keywords: UNIT ROOTS; EXCHANGE RATE; TESTS; ECONOMIC MODELS;

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References

References listed on IDEAS
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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  1. Jeffrey A. Frankel, 1993. "On Exchange Rates," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061546, December.
  2. Engel, Charles & Kim, Chang-Jin, 1999. "The Long-Run U.S./U.K. Real Exchange Rate," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 31(3), pages 335-56, August.
  3. Jeffrey A. Frankel, 1985. "International capital mobility and crowding-out in the U.S. economy: imperfect integration of financial markets or of goods markets?," Proceedings, Federal Reserve Bank of St. Louis, pages 33-74.
  4. Edison, Hali J, 1987. "Purchasing Power Parity in the Long Run: A Test of the Dollar/Pound Exchange Rate (1890-1978)," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 19(3), pages 376-87, August.
  5. Summers, Robert & Heston, Alan, 1991. "The Penn World Table (Mark 5): An Expanded Set of International Comparisons, 1950-1988," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(2), pages 327-68, May.
  6. Danny Quah, 1991. "The Relative Importance of Permanent and Transitory Components: Identi- fication and Some Theoretical Bounds," NBER Technical Working Papers 0106, National Bureau of Economic Research, Inc.
  7. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "A panel project on purchasing power parity: Mean reversion within and between countries," Journal of International Economics, Elsevier, vol. 40(1-2), pages 209-224, February.
  8. Lawrence J. Christiano & Martin Eichenbaum, 1990. "Unit roots in real GNP: do we know, and do we care?," Working Paper Series, Macroeconomic Issues 90-2, Federal Reserve Bank of Chicago.
  9. Abuaf, Niso & Jorion, Philippe, 1990. " Purchasing Power Parity in the Long Run," Journal of Finance, American Finance Association, American Finance Association, vol. 45(1), pages 157-74, March.
  10. Lothian, James R & Taylor, Mark P, 1996. "Real Exchange Rate Behavior: The Recent Float from the Perspective of the Past Two Centuries," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 104(3), pages 488-509, June.
  11. Ardeni, Pier Giorgio & Lubian, Diego, 1991. "Is there trend reversion in purchasing power parity?," European Economic Review, Elsevier, vol. 35(5), pages 1035-1055, July.
  12. Hansen, Bruce E., 1995. "Rethinking the Univariate Approach to Unit Root Testing: Using Covariates to Increase Power," Econometric Theory, Cambridge University Press, vol. 11(05), pages 1148-1171, October.
  13. Patel, Jayendu, 1990. "Purchasing Power Parity as a Long-Run Relation," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 5(4), pages 367-79, Oct.-Dec..
  14. Donald W.K. Andrews, 1988. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Cowles Foundation Discussion Papers 877R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1989.
  15. Froot, Kenneth A. & Kim, Michael & Rogoff, Kenneth, 1995. "The Law of One Price Over 700 Years," Working Papers, C.V. Starr Center for Applied Economics, New York University 95-13, C.V. Starr Center for Applied Economics, New York University.
  16. Cheung, Yin-Wong & Lai, Kon S., 1994. "Mean reversion in real exchange rates," Economics Letters, Elsevier, vol. 46(3), pages 251-256, November.
  17. Perron, P. & Ng, S., 1994. "Useful Modifications to Some Unit Root Tests with Dependent Errors and Their Local Asymptotic Properties," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 9427, Universite de Montreal, Departement de sciences economiques.
  18. Mark P. Taylor, 2003. "Purchasing Power Parity," Review of International Economics, Wiley Blackwell, vol. 11(3), pages 436-452, 08.
  19. Kremers, Jeroen J M & Ericsson, Neil R & Dolado, Juan J, 1992. "The Power of Cointegration Tests," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 325-48, August.
  20. Mark, Nelson C. & Choi, Doo-Yull, 1997. "Real exchange-rate prediction over long horizons," Journal of International Economics, Elsevier, vol. 43(1-2), pages 29-60, August.
  21. Obstfeld, Maurice & Taylor, Alan M., 1997. "Nonlinear Aspects of Goods-Market Arbitrage and Adjustment: Heckscher's Commodity Points Revisited," Journal of the Japanese and International Economies, Elsevier, vol. 11(4), pages 441-479, December.
  22. Ng, S. & Perron, P., 1994. "Unit Root Tests ARMA Models with Data Dependent Methods for the Selection of the Truncation Lag," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 9423, Universite de Montreal, Departement de sciences economiques.
  23. Schwert, G William, 2002. "Tests for Unit Roots: A Monte Carlo Investigation," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 20(1), pages 5-17, January.
  24. Yin-Wong Cheung & Menzie D. Chinn, 1996. "Further Investigation of the Uncertain Unit Root in GNP," NBER Technical Working Papers 0206, National Bureau of Economic Research, Inc.
  25. Edison, Hali J. & Gagnon, Joseph E. & Melick, William R., 1997. "Understanding the empirical literature on purchasing power parity: the post-Bretton Woods era," Journal of International Money and Finance, Elsevier, Elsevier, vol. 16(1), pages 1-17, February.
  26. Engel, C., 1996. "Accounting for U.S. Real Exchange Rate Changes," Discussion Papers in Economics at the University of Washington, Department of Economics at the University of Washington 96-02, Department of Economics at the University of Washington.
  27. Rogers, J.H. & Jenkins, M.A., 1993. "Haircuts or Hysteresis? Sources of Movements in Real Exchange Rates," Papers, Pennsylvania State - Department of Economics 4-93-6, Pennsylvania State - Department of Economics.
  28. Edison, Hali J & Klovland, Jan Tore, 1987. "A Quantitative Reassessment of the Purchasing Power Parity Hypothesis: Evidence from Norway and the United Kingdom," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 2(4), pages 309-33, October.
  29. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
  30. Cochrane, John H., 1991. "A critique of the application of unit root tests," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 15(2), pages 275-284, April.
  31. O'Connell, Paul G. J., 1998. "The overvaluation of purchasing power parity," Journal of International Economics, Elsevier, vol. 44(1), pages 1-19, February.
  32. repec:cup:etheor:v:11:y:1995:i:5:p:1148-71 is not listed on IDEAS
  33. Shang-Jin Wei & David C. Parsley, 1995. "Purchasing Power Disparity During the Floating Rate Period: Exchange Rate Volatility, Trade Barriers and Other Culprits," NBER Working Papers 5032, National Bureau of Economic Research, Inc.
  34. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers, Michigan State - Econometrics and Economic Theory 8905, Michigan State - Econometrics and Economic Theory.
  35. DeJong, David N, et al, 1992. "Integration versus Trend Stationarity in Time Series," Econometrica, Econometric Society, Econometric Society, vol. 60(2), pages 423-33, March.
  36. Engel, Charles, 1993. "Real exchange rates and relative prices : An empirical investigation," Journal of Monetary Economics, Elsevier, Elsevier, vol. 32(1), pages 35-50, August.
  37. Horvath, Michael T.K. & Watson, Mark W., 1995. "Testing for Cointegration When Some of the Cointegrating Vectors are Prespecified," Econometric Theory, Cambridge University Press, vol. 11(05), pages 984-1014, October.
  38. Mark, Nelson C., 1990. "Real and nominal exchange rates in the long run: An empirical investigation," Journal of International Economics, Elsevier, vol. 28(1-2), pages 115-136, February.
  39. Phillips, P.C.B., 1986. "Testing for a Unit Root in Time Series Regression," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 8633, Universite de Montreal, Departement de sciences economiques.
  40. Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
  41. Fisher, Eric O'N & Park, Joon Y, 1991. "Testing Purchasing Power Parity under the Null Hypothesis of Co-integration," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 101(409), pages 1476-84, November.
  42. John H. Rogers, 1995. "Real shocks and real exchange rates in really long-term data," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 493, Board of Governors of the Federal Reserve System (U.S.).
  43. Cochrane, John H, 1988. "How Big Is the Random Walk in GNP?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(5), pages 893-920, October.
  44. Andrews, Donald W K & Monahan, J Christopher, 1992. "An Improved Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimator," Econometrica, Econometric Society, Econometric Society, vol. 60(4), pages 953-66, July.
  45. Glen, Jack D., 1992. "Real exchange rates in the short, medium, and long run," Journal of International Economics, Elsevier, vol. 33(1-2), pages 147-166, August.
  46. Clark, Peter K., 1988. "Nearly redundant parameters and measures of persistence in economic time series," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 12(2-3), pages 447-461.
  47. Charles Engel & Michael K. Hendrickson & John H. Rogers, 1997. "Intra-National, Intra-Continental, and Intra-Planetary PPP," NBER Working Papers 6069, National Bureau of Economic Research, Inc.
  48. Alan C. Stockman & Linda L. Tesar, 1990. "Tastes and Technology in a Two-Country Model of the Business Cycle: Explaining International Comovements," NBER Working Papers 3566, National Bureau of Economic Research, Inc.
  49. Kim, Yoonbai, 1990. "Purchasing Power Parity in the Long Run: A Cointegration Approach," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 22(4), pages 491-503, November.
  50. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 72, pages 584.
  51. Mark, Nelson C, 1995. "Exchange Rates and Fundamentals: Evidence on Long-Horizon Predictability," American Economic Review, American Economic Association, vol. 85(1), pages 201-18, March.
  52. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, Elsevier, vol. 10(2), pages 139-162.
  53. Leybourne, S J & McCabe, B P M, 1994. "A Consistent Test for a Unit Root," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 12(2), pages 157-66, April.
  54. Chinn, Menzie D. & Meese, Richard A., 1995. "Banking on currency forecasts: How predictable is change in money?," Journal of International Economics, Elsevier, vol. 38(1-2), pages 161-178, February.
  55. Baillie, Richard T. & Selover, David D., 1987. "Cointegration and models of exchange rate determination," International Journal of Forecasting, Elsevier, Elsevier, vol. 3(1), pages 43-51.
  56. Faust, Jon, 1996. "Near Observational Equivalence and Theoretical size Problems with Unit Root Tests," Econometric Theory, Cambridge University Press, vol. 12(04), pages 724-731, October.
  57. repec:cup:etheor:v:12:y:1996:i:4:p:724-31 is not listed on IDEAS
  58. Stock, James H., 1990. "Unit roots in real GNP: Do we know and do we care? : A comment," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 32(1), pages 63-82, January.
  59. Cheung, Yin-Wong & Lai, Kon S., 1993. "Long-run purchasing power parity during the recent float," Journal of International Economics, Elsevier, vol. 34(1-2), pages 181-192, February.
  60. Blough, Stephen R, 1992. "The Relationship between Power and Level for Generic Unit Root Tests in Finite Samples," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 7(3), pages 295-308, July-Sept.
  61. Schwert, G. William, 1987. "Effects of model specification on tests for unit roots in macroeconomic data," Journal of Monetary Economics, Elsevier, Elsevier, vol. 20(1), pages 73-103, July.
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