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The specification of cross exchange rate equations used to test Purchasing Power Parity

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  • John Hunter

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  • Mark Simpson

Abstract

The Article considers the specification of models used to test Purchasing Power Parity when applied to cross exchange rates. Specifically,conventional dynamic models used to test stationarity of the real exchange rate are likely to be misspecified, except when the parameters of each exchange rate equation are the same.

Suggested Citation

  • John Hunter & Mark Simpson, 2004. "The specification of cross exchange rate equations used to test Purchasing Power Parity," Economics and Finance Discussion Papers 04-22, Economics and Finance Section, School of Social Sciences, Brunel University.
  • Handle: RePEc:bru:bruedp:04-22
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