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Functional Forms and PPP: The Case of Canada, the EU, Japan, and the U.K

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  • Hsing, Y

Abstract

This paper applies an extended Box-Cox model to test the functional form of the purchasing power parity hypothesis for Canada, the EU, Japan, and the U.K. Both the relative CPI and the relative PPI are considered in empirical work. The log-log form commonly chosen by most researchers can be rejected for Japan when the relative PPI is considered and the EU and the U.K. when the relative CPI or PPI is considered. The value of R2 is higher based on the relative PPI than that based on the relative CPI. None of the estimated elasticities is statistically equal to unity, suggesting that proportionality may not apply.

Suggested Citation

  • Hsing, Y, 2009. "Functional Forms and PPP: The Case of Canada, the EU, Japan, and the U.K," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 9(1).
    • Handle: RePEc:eaa:aeinde:v:9:y:2009:i:1_1
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    Cited by:

    1. Aye, G.C. & Goswami, S. & Gupta, R., 2013. "Metropolitan House Prices In Regions of India: Do They Converge?," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 13(1), pages 135-144.
    2. Sonali DAS , Rangan GUPTA & Patrick A. KAYA, 2010. "Convergence Of Metropolitan House Prices In South Africa: A Re-Examination Using Efficient Unit Root Tests," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 10(1).
    3. Goodness C. Aye & Samrat Goswami & Rangan Gupta, 2012. "Metropolitan House Prices In India: Do They Converge?," Working Papers 201220, University of Pretoria, Department of Economics.

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    More about this item

    Keywords

    PPP; functional forms; proportionality; elasticity;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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