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The PPP Hypothesis Revisited: Evidence Using a Multivariate Long-Memory Model

Author

Listed:
  • Guglielmo Maria Caporale
  • Luis A. Gil-Alana
  • Yuliya Lovcha

Abstract

This paper examines the PPP hypothesis analysing the behaviour of the real exchange rates vis-à-vis the US dollar for four major currencies (namely, the Canadian dollar, the euro, the Japanese yen and the British pound). An innovative approach based on fractional integration in a multivariate context is applied to annual data from 1970 to 2011. Long memory is found to characterise the Canadian dollar, the British pound and the euro, but in all four cases the results are consistent with the relative version of PPP.

Suggested Citation

  • Guglielmo Maria Caporale & Luis A. Gil-Alana & Yuliya Lovcha, 2013. "The PPP Hypothesis Revisited: Evidence Using a Multivariate Long-Memory Model," Discussion Papers of DIW Berlin 1288, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp1288
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    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.419059.de/dp1288.pdf
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    More about this item

    Keywords

    PPP; long memory; multivariate fractional integration;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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