Advanced Search
MyIDEAS: Login

Testing the purchasing power parity in pooled systems of error correction models

Contents:

Author Info

  • Herwartz, Helmut
  • Reimers, Hans-Eggert

Abstract

In this paper we test the purchasing power parity for the post Bretton Woods period for 18 main industrial countries. As base currencies we use alternatively the Deutsche mark, the Japanese yen, and the US dollar. We employ error correction models for single countries and on the level of pooled equations allowing efficient inference on domestic and foreign price elasticities of nominal exchange rates. Likelihood ratio tests are applied to infer on linear restrictions implied by the economic relationship. Critical values for these tests are estimated by means of the wild bootstrap that copes with heterogeneous error distributions and contemporaneous correlation within a pooled system of single equations. Furthermore, the tests are performed recursively in order to address the issue of time dependence of our results. We find that the purchasing power parity provides an accurate description of exchange rate dynamics if the Deutsche mark or the Japanese yen are used as base currencies. Specified towards the US dollar we reject the economic model. It turns out that this overall conclusion is not invariant with respect to the investigated sample period. --

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://econstor.eu/bitstream/10419/62231/1/723856591.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 2000,79.

as in new window
Length:
Date of creation: 2000
Date of revision:
Handle: RePEc:zbw:sfb373:200079

Contact details of provider:
Postal: Spandauer Str. 1,10178 Berlin
Phone: +49-30-2093-5708
Fax: +49-30-2093-5617
Email:
Web page: http://www.wiwi.hu-berlin.de/
More information through EDIRC

Related research

Keywords: Purchasing power parity; Panel cointegration; Wild bootstrap;

Other versions of this item:

Find related papers by JEL classification:

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.:
as in new window
  1. Herwartz, Helmut & Neumann, Michael H., 2000. "Bootstrap inference in single equation error correction models," SFB 373 Discussion Papers 2000,87, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  2. repec:wop:humbsf:2000-87 is not listed on IDEAS
  3. Froot, Kenneth A. & Rogoff, Kenneth, 1995. "Perspectives on PPP and long-run real exchange rates," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 32, pages 1647-1688 Elsevier.
  4. Papell, David H., 1997. "Searching for stationarity: Purchasing power parity under the current float," Journal of International Economics, Elsevier, vol. 43(3-4), pages 313-332, November.
  5. 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.
  6. 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, vol. 16(1), pages 1-17, February.
  7. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
  8. Koedijk, Kees G. & Schotman, Peter C. & Van Dijk, Mathijs A., 1998. "The re-emergence of PPP in the 1990s," Journal of International Money and Finance, Elsevier, vol. 17(1), pages 51-61, February.
  9. Renato FlĂ´res & Philippe Jorion & Pierre-Yves Preumont & Ariane Szafarz, 1999. "Multivariate Unit root Tests of the PPP Hypothesis," ULB Institutional Repository 2013/711, ULB -- Universite Libre de Bruxelles.
  10. 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.
  11. 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.
  12. Boswijk, H. Peter, 1995. "Efficient inference on cointegration parameters in structural error correction models," Journal of Econometrics, Elsevier, vol. 69(1), pages 133-158, September.
  13. Corbae, Dean & Ouliaris, Sam, 1991. "A Test of Long-Run Purchasing Power Parity Allowing for Structural Breaks," The Economic Record, The Economic Society of Australia, vol. 67(196), pages 26-33, March.
  14. Jorion, Philippe & Sweeney, Richard J., 1996. "Mean reversion in real exchange rates: evidence and implications for forecasting," Journal of International Money and Finance, Elsevier, vol. 15(4), pages 535-550, August.
  15. Papell, David H. & Theodoridis, Hristos, 1998. "Increasing evidence of purchasing power parity over the current float," Journal of International Money and Finance, Elsevier, vol. 17(1), pages 41-50, February.
  16. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Olive, Michael, 2004. "Pricing behaviour in Japanese manufacturing: a comparative study," Japan and the World Economy, Elsevier, vol. 16(4), pages 417-429, December.
  2. Besancenot, Damien & Vranceanu, Radu, 2003. "Financial Instability under Floating Exchange Rates," ESSEC Working Papers DR 03011, ESSEC Research Center, ESSEC Business School.
  3. Gadea, Maria-Dolores & Montanes, Antonio & Reyes, Marcelo, 2004. "The European Union currencies and the US dollar: from post-Bretton-Woods to the Euro," Journal of International Money and Finance, Elsevier, vol. 23(7-8), pages 1109-1136.
  4. repec:ebl:ecbull:v:3:y:2002:i:15:p:1-11 is not listed on IDEAS

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:zbw:sfb373:200079. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.