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Purchasing Power Parity as a long-term memory process: evidence from Canada

Author Info

Listed author(s):
  • Jean-Francois Villeneuve
  • Jagdish Handa

Abstract

This paper uses cointegration and fractional cointegration techniques to test for purchasing power parity (PPP) between the Canadian and the US currencies during the floating exchange period from 1974:1 to 2001:12. The focus is on whether the deviations from the cointegrating relationship possess long memory and may be well-described by a fractionally cointegrated process. The Johansen-Juselius procedure does yield an appropriate cointegration vector, thereby supporting PPP as a long-run relationship. However, it is also found that the deviations from PPP do not follow a fractionally cointegrated stationary process, so that PPP at best holds only weakly even in the long run.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/0960310052000345831
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Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 16 (2006)
Issue (Month): 1-2 ()
Pages: 109-117

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Handle: RePEc:taf:apfiec:v:16:y:2006:i:1-2:p:109-117
DOI: 10.1080/0960310052000345831
Contact details of provider: Web page: http://www.tandfonline.com/RAFE20

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Cited by:

  1. McMillan, David G., 2009. "The confusing time-series behaviour of real exchange rates: Are asymmetries important?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(4), pages 692-711, October.
  2. Aloy, Marcel & Boutahar, Mohamed & Gente, Karine & Péguin-Feissolle, Anne, 2011. "Purchasing power parity and the long memory properties of real exchange rates: Does one size fit all?," Economic Modelling, Elsevier, vol. 28(3), pages 1279-1290, May.
  3. Luis A. Gil-Alana & Jiang Liang, 2011. "The PPP hypothesis in the US/China relationship. Fractional integration, time variation and data frequency," Faculty Working Papers 13/11, School of Economics and Business Administration, University of Navarra.

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