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Are Nominal Exchange Rates and Price Levels Co‐Integrated? New Evidence from Threshold Autoregressive and Momentum‐Threshold Autoregressive Models

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  • PARESH KUMAR NARAYAN

Abstract

The goal of this paper is to examine evidence for co‐integration between nominal exchange rates for Canada, the UK, Japan, Germany, Italy and France (G6) vis‐à‐vis the US dollar, and the relative price ratios using monthly data over the period 1973:01 to 1997:04. Motivated by the fact that exchange rate adjustment may be asymmetric, we allowed for asymmetric adjustment in exchange rates by using the threshold autoregressive model and the momentum threshold autoregressive model. We do not find any evidence of a co‐integrating relationship; hence, we fail to establish long‐run purchasing power parity.

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  • Paresh Kumar Narayan, 2007. "Are Nominal Exchange Rates and Price Levels Co‐Integrated? New Evidence from Threshold Autoregressive and Momentum‐Threshold Autoregressive Models," The Economic Record, The Economic Society of Australia, vol. 83(260), pages 74-85, March.
    • Handle: RePEc:bla:ecorec:v:83:y:2007:i:260:p:74-85
    DOI: 10.1111/j.1475-4932.2007.00377.x
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    2. Soon, Siew-Voon & Baharumshah, Ahmad Zubaidi, 2021. "Exchange rates and fundamentals: Further evidence based on asymmetric causality test," International Economics, Elsevier, vol. 165(C), pages 67-84.
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    4. Duasa, Jarita, 2009. "Asymmetric cointegration relationship between real exchange rate and trade variables: The case of Malaysia," MPRA Paper 14535, University Library of Munich, Germany.
    5. Kalyoncu, Huseyin & Kalyoncu, Kahraman, 2008. "Purchasing power parity in OECD countries: Evidence from panel unit root," Economic Modelling, Elsevier, vol. 25(3), pages 440-445, May.

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