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Long-run PPP in a system context: No favorable evidence after all for the U.S., Germany, and Japan

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  • Cushman, David O.

Abstract

In a cointegration analysis of PPP in five-variable system for Germany, Japan, and the U.S., Sideris [Sideris, D., 2006. Testing for long-run PPP in a system context: evidence for the U.S., Germany and Japan. Journal of International Financial Markets, Institutions and Money 16, 143-154] reports three cointegration vectors and concludes that they are consistent with some form of PPP for all three exchange rates. The present paper reconsiders Sideris's three-country analysis with special attention to the specification of deterministic terms in the cointegration testing. In addition, the passage of time since the Sideris paper allows the data set to be extended. The present paper also applies the Johansen approach and longer data set to traditional two-country models for the same exchange rates. In no case is any evidence in favor of PPP found.

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  • Cushman, David O., 2008. "Long-run PPP in a system context: No favorable evidence after all for the U.S., Germany, and Japan," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(5), pages 413-424, December.
  • Handle: RePEc:eee:intfin:v:18:y:2008:i:5:p:413-424
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    Cited by:

    1. Arize, Augustine C. & Malindretos, John & Nam, Kiseok, 2010. "Cointegration, dynamic structure, and the validity of purchasing power parity in African countries," International Review of Economics & Finance, Elsevier, vol. 19(4), pages 755-768, October.
    2. Ntokozo Patrick Nzimande & Marcel Kohler, 2016. "On the Validity of Purchasing Power Parity: Evidence from Energy Exporting Sub-Saharan Africa Countries," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 66(3), pages 71-82, July-Sept.

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