The Short-and Long-Run Relationships Between the Exchange Rate of the Dollar and Producer Prices in the U.S
This paper investigates empirically the relationship between exchange rates and producer prices in the U.S. using a multivariate dynamic framework. Cointegration tests reveal that is a stable long-run relationship between prices, exchange rates and other factors according to which depreciations lead to higher prices. However, the estimated effect is not consistent with the pure form of the purchasing power parity hypothesis. It is also found that in the short run, the rate of price inflation. Finally, there appears to be bi-directional causality between producer prices and exchange rates. [E31, F31, F41[
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Volume (Year): 11 (1997)
Issue (Month): 2 ()
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- McKinnon, Ronald I, 1982. "Currency Substitution and Instability in the World Dollar Standard," American Economic Review, American Economic Association, vol. 72(3), pages 320-33, June.
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- McNown, Robert & Wallace, Myles S., 1992. "Cointegration tests of a long-run relation between money demand and the effective exchange rate," Journal of International Money and Finance, Elsevier, vol. 11(1), pages 107-114, February.
- Clements, Michael P. & Mizon, Grayham E., 1991. "Empirical analysis of macroeconomic time series : VAR and structural models," European Economic Review, Elsevier, vol. 35(4), pages 887-917, May.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Dickey, David A & Pantula, Sastry G, 2002. "Determining the Order of Differencing in Autoregressive Processes," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 18-24, January.
- Stock, James H & Watson, Mark W, 1988. "Variable Trends in Economic Time Series," Journal of Economic Perspectives, American Economic Association, vol. 2(3), pages 147-74, Summer.
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