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Cointegration tests of purchasing power parity

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  • Frederick Wallace

Abstract

Im et al. (Unpublished working paper, 2008 ) develop cointegration tests using stationary instrumental variables. Their tests avoid the need to simulate critical values for the cointegration estimations, especially problematic in the presence of a nuisance parameter. Likewise, bootstrapping errors is unnecessary. Using an updated version of the Taylor (Rev Econ Stat 84(1):139–150, 2002 ) data set, the Im et al. (Unpublished working paper, 2008 ) approach is applied to two well-known, single equation cointegration methods to test for purchasing power parity. The estimations with instruments provide evidence of purchasing power parity (PPP) for more than half of the countries studied; but the empirical results, hence conclusions regarding PPP sometimes differ with the choice of instrument. Copyright Kiel Institute 2013

Suggested Citation

  • Frederick Wallace, 2013. "Cointegration tests of purchasing power parity," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 149(4), pages 779-802, December.
    • Handle: RePEc:spr:weltar:v:149:y:2013:i:4:p:779-802
    DOI: 10.1007/s10290-013-0165-2
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    Cited by:

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    2. Frederick H. Wallace, 2017. "Purchasing power parity in Mexico since 1933," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 26(1), pages 1-18, December.

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    More about this item

    Keywords

    Cointegration; Purchasing power parity; Real exchange rates; C22; F31;
    All these keywords.

    JEL classification:

    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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