Long-run purchasing power parity with short-run data: evidence with a null hypothesis of stationarity

Article Abstract:

Alternative tests based on stationarity and cointegration as the null hypotheses were used to test the long-run purchasing power parity (PPP) with short-run data from the existing floating exchange rate period. The so-called KPPS tests demonstrated that most of the time, both the null of stationarity of the real exchange rate and the null hypothesis of cointegration between the nominal exchange rate and the domestic and foreign price levels cannot be rejected. Several Monte Carlo studies support the derived results that indicate long-run PPP.

Personal Consumption Expend

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Understanding the empirical literature on purchasing power parity: the post-Bretton Woods era

Article Abstract:

The results of Monte Carlo experiments demonstrate that the low power of Johansen cointegration tests is largely responsible for the failure of most studies to provide evidence in support of purchasing power parity (PPP) in the era following the Bretton Woods agreement. A study using a testing procedure developed by M.T. Horvath and M.W. Watson has provided moderate support for PPP.

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Increasing evidence of purchasing power parity over the current float

Article Abstract:

Evidence versus the unit root null, and hence in favor of purchasing power parity (PPP), does rise as the extent of the data increases. The bolstering of the evidence of PPP is equally stronger when the German mark, instead of the US dollar, is utilized as the base currency. The rejections of the unit root null do not exclusively rise as the sample size grows.

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