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Inflation, Exchange Rates and PPP in a Multivariate Panel Cointegration Model
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Information Science, Statistics.
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Information Science, Statistics.
2008 (English)In: Econometrics Journal, ISSN 1368-4221, E-ISSN 1368-423X, Vol. 11, no 1, p. 58-79Article in journal (Refereed) Published
Abstract [en]

New multivariate panel cointegration methods are used to analyze nominal exchange rates and prices in four major economies in Europe: France, Germany, Italy and the United Kingdom for the post-Bretton Woods period. We test for purchasing power parity (PPP) between these four countries and find that the theoretical PPP relationship does not hold. However, the estimated unrestricted relationship is found to be remarkably close to the theoretical one (1, -1.5, 0.9 instead of 1, -1,1). Relevant asymptotic results are stated, proved, and evaluated using Monte Carlo simulations. The asymptotic results are general and may hence be used in similar empirical contexts using the same model structure. Parametric bootstrap inference is used in order to deal with test size distortions.

Place, publisher, year, edition, pages
2008. Vol. 11, no 1, p. 58-79
Keywords [en]
panel data, long-run purchasing power parity, multivariate cointegration analysis, bootstrap inference
National Category
Probability Theory and Statistics
Identifiers
URN: urn:nbn:se:uu:diva-13104DOI: 10.1111/j.1368-423X.2008.00231.xISI: 000253610400005OAI: oai:DiVA.org:uu-13104DiVA, id: diva2:40874
Available from: 2008-01-21 Created: 2008-01-21 Last updated: 2017-12-11Bibliographically approved

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Lyhagen, JohanLarsson, Rolf

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