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Does the purchasing power parity hypothesis hold after 1998?

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  • Zanetti Chini, Emilio

Abstract

We investigate the empirical support to the Purchasing Power Parity hypothesis by using sixteen real exchange rates for the decade 1999-2009. The literature has recently arrived to a solution to the two PPP puzzles if considering the post-Bretton Woods period from 1975 to 1998. Time series-based studies consider few cases, while panel-based studies have been recently criticized. Multivariate and panel cointegration, and nonlinear models are here implemented. The theory is rejected and both the puzzles remain unsolved if considering a linear structure, while a nonlinear scenario seems to allow for a partial solution to the first puzzle.

Suggested Citation

  • Zanetti Chini, Emilio, 2010. "Does the purchasing power parity hypothesis hold after 1998?," MPRA Paper 27225, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:27225
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    File URL: https://mpra.ub.uni-muenchen.de/37418/2/MPRA_paper_37418.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    PPP; unit roots; cointegration; nonlinear models; IRF;

    JEL classification:

    • 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
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • 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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