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Inflation, Exchange Rates and PPP in a Multivariate Panel Cointegration Model

Author

Listed:
  • Tor Jacobson
  • Johan Lyhagen

    () (Department of Economic Statistics, Stockholm School of Economics)

  • Rolf Larsson
  • Marianne Nessén

Abstract

New multivariate panel cointegration methods are used to analyze nominal exchange rates and prices in the four major economic powers in Europe, France, Germany, Italy and Great Britain for the post- Bretton Woods period. We test for PPP and find that the theoretical PPP relationship does not hold but there is a similar (1,-1.5,0.9 instead of 1,-1,1) relationship which is common for the investigated countries. Parametric bootstrap inference is used to deal with badly small sample sized tests.

Suggested Citation

  • Tor Jacobson & Johan Lyhagen & Rolf Larsson & Marianne Nessén, 2002. "Inflation, Exchange Rates and PPP in a Multivariate Panel Cointegration Model," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 D4-2, International Conferences on Panel Data.
  • Handle: RePEc:cpd:pd2002:d4-2
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Brissimis, Sophocles N. & Kosma, Theodora, 2005. "Market power, innovative activity and exchange rate pass-through in the euro area," Working Paper Series 531, European Central Bank.
    2. Ritesh Kumar Mishra & Sanjay Sehgal, 2011. "Exchange rates and prices in purchasing power parity framework: Are bilateral real exchange rates stationary?," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 4(3), pages 274-286.
    3. Federico Marongiu, 2004. "Devaluación e Inflacion en Argentina despues de la Convertibilidad," Macroeconomics 0404013, EconWPA.
    4. Laaksonen-Craig, Susanna, 2004. "Foreign direct investments in the forest sector: implications for sustainable forest management in developed and developing countries," Forest Policy and Economics, Elsevier, vol. 6(3-4), pages 359-370, June.
    5. Miguel Carvalho & Paulo Júlio, 2012. "Digging out the PPP hypothesis: an integrated empirical coverage," Empirical Economics, Springer, vol. 42(3), pages 713-744, June.
    6. Hwa-Taek Lee & Gawon Yoon, 2013. "Does purchasing power parity hold sometimes? Regime switching in real exchange rates," Applied Economics, Taylor & Francis Journals, vol. 45(16), pages 2279-2294, June.
    7. Piotr Kębłowski, 2011. "The Behaviour of Exchange Rates in the Central European Countries and Credit Default Risk Premiums," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 3(4), pages 221-236, December.
    8. In Choi, 2013. "Panel Cointegration," Working Papers 1208, Research Institute for Market Economy, Sogang University.
    9. Johan Lyhagen & Pär Österholm & Mikael Carlsson, 2007. "Testing for Purchasing Power Parity in Cointegrated Panels," IMF Working Papers 07/287, International Monetary Fund.
    10. Piotr Kębłowski, 2016. "Canonical Correlation Analysis in Panel Vector Error Correction Model. Performance Comparison," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 8(4), pages 203-217, December.

    More about this item

    Keywords

    Long-run purchasing power parity; multivariate cointegration analysis; bootstrap inference.;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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