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Colombian Purchasing Power Parity Analysed Using A Framework of Multivariate Cointegration

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  • Peter Rowland

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  • Hugo Oliveros

Abstract

This paper tests for purchasing power parity (PPP) between Colombia and its main trading partners using the Johansen framework of multivariate cointegration. The tests shows that PPP does not hold in the strong sense, but a clear purchasing power relationship is, nevertheless, shown to exist. The model is, furthermore, shown to have significant forecasting power. It outperforms a random walk in out-of-sample forecasting on the 12 and 24-month horizon but not on the 3 and 6-month horizon.

Suggested Citation

  • Peter Rowland & Hugo Oliveros, 2003. "Colombian Purchasing Power Parity Analysed Using A Framework of Multivariate Cointegration," BORRADORES DE ECONOMIA 002150, BANCO DE LA REPÚBLICA.
  • Handle: RePEc:col:000094:002150
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    Cited by:

    1. Orlando Lorduy Herrera, 2015. "La paridad del poder adquisitivo: nueva evidencia para Colombia y Latinoamérica," Revista CIFE, Universidad Santo Tomás, February.
    2. Peter Rowland, 2003. "Forecasting the USD/COP Exchange Rate: A Random Walk a Variable Drift," Borradores de Economia 253, Banco de la Republica de Colombia.
    3. Peter Rowland, 2003. "Forecasting The Usd/Cop Exchange Rate: A Random Walk With A Variable Drift," BORRADORES DE ECONOMIA 002736, BANCO DE LA REPÚBLICA.

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