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Purchasing power parity in Brazil: a test for fractional cointegration

  • Denisard Alves
  • Regina Celia Cati
  • Vera Lucia Fava

The purpose of this paper is to test the validity of the purchasing power parity (PPP) doctrine in Brazil. Historical data for the period 1855-1996 are considered. The period 1855-1990 is also analysed in order to compare the results with those obtained by Zini and Cati (1993) using the conventional cointegration analysis. This article uses fractional cointegration analysis, a flexible methodology which allows for more subtle forms of mean reversion. The tests performed are those of Geweke and Porter-Hudak (1983), and of Hurvich and Ray (1995). The critical values for both tests are generated by simulation because they are non-standard. The empirical results do not support the absolute PPP hypothesis but the relative PPP holds in the long run.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 33 (2001)
Issue (Month): 9 ()
Pages: 1175-1185

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Handle: RePEc:taf:applec:v:33:y:2001:i:9:p:1175-1185
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