scholarly journals A Fractional Cointegration Analysis of Purchasing Power Parity: Evidence of ELW

2015 ◽  
Vol 3 (11) ◽  
pp. 664-672
Author(s):  
Nadhem Selmi
Keyword(s):  
Purchasing Power Parity ◽  
Weak Form ◽  
The United States ◽  
Cointegration Analysis ◽  
Purchasing Power ◽  
Power Parity ◽  
Fractional Cointegration ◽  
Relative Prices ◽  
Long Run ◽  
The Uk

This study examines the long-run relationship between exchange rates and relative prices. We use a long memory techniques that allow for persistence of chock relationships across real exchange rate to examine the existence of weak-form and strong-form Purchasing Power Parity (PPP) between the Tunisian and five partner countries of Tunisia, namely, (Germany, the United States, France, Italy, the UK, Morocco and Libya. The empirical results obtained through the R/S, Modified R/S, GPH and ELW tests; make us consider the PPP as an event in the long run if significant short-term deviations from the PPP cannot exist. Therefore, the analysis of the fractional cointegration makes the deviations, regarding equilibrium, follow a slightly integrated process and therefore capture a much wider group of research parity or mean-reverting behavior.

Purchasing power parity as a long-term memory process

2015 ◽  
Vol 10 (4) ◽  
pp. 711-725 ◽  
Author(s):  
Mohamed Bilel Triki ◽  
Samir Maktouf
Keyword(s):  
Exchange Rate ◽  
Purchasing Power Parity ◽  
Empirical Literature ◽  
Long Term Memory ◽  
Purchasing Power ◽  
Power Parity ◽  
Fractional Cointegration ◽  
Content Type ◽  
Long Run ◽  
The Usa

Purpose – The purpose of this paper is to focus on whether the deviations from the cointegrating relationship possess long memory and the fractional cointegration analyses may capture a wider range of mean-reversion behaviour than standard cointegration analyses. Design/methodology/approach – This paper uses a fractional cointegration technique to test the purchasing power parity (PPP). Findings – The authors found that PPP held, but very weakly, in the long run between the Argentine, Brazil, Chile, Colombia, Indonesia, Korea, Mexico, Thailand and Venezuela and US exchange rate during our floating exchange rate period but that the deviations from it did not follow a stationary process. Nevertheless, it is also found that the deviations from PPP exists and can be characterized by a fractionally integrated process in nine out of 13 countries studied. Originality/value – The findings are consistent with the consensus of the empirical literature, reviewed earlier in this paper, on PPP between Argentine, Brazil, Chile, Colombia, Indonesia, Korea, Mexico, Thailand and Venezuela and the USA.

scholarly journals Purchasing Power Parity in Developing Countries: Evidence from Conventional and Fractional Cointegration Tests

2004 ◽  
Author(s):  
A. C. Arize ◽  
John Malindretos ◽  
Elias C. Grivoyannis
Keyword(s):  
Developing Countries ◽  
Purchasing Power Parity ◽  
Price Level ◽  
Weak Form ◽  
Purchasing Power ◽  
Power Parity ◽  
Long Run ◽  
Cointegration Tests ◽  
Rate Period ◽  
Floating Exchange Rate

This paper examines the long-run validity of purchasing power parity (PPP) for fourteen developing countries. The period examined is 1973:4 through 2002:8. The methods of Elliot, Rothemberg and Stock (1996), Kwiattkoski et al. (1992) and Geweke and Porter-Hudak (1983) are employed to detect the time series properties of exchange rates and consumer price indices of these countries. We find that these variables are nonstationary. We then utilize these data to test the PPP using both conventional and fractional approaches. Estimates of the cointegrating relations are obtained using estimators suggested by Stock and Watson (1993) and Phillips and Hanson (1990), respectively. The results are consistent with the argument that, during the recent floating exchange-rate period, PPP holds well, at least in a weak form, in developing countries where the general price level movements overshadow the factors causing deviations from the PPP.  

scholarly journals Pricing-to-Market, Trade Costs, and International Relative Prices

2008 ◽  
Vol 98 (5) ◽  
pp. 1998-2031 ◽  
Author(s):  
Andrew Atkeson ◽  
Ariel Burstein
Keyword(s):  
International Trade ◽  
Market Structure ◽  
Purchasing Power Parity ◽  
Imperfect Competition ◽  
The United States ◽  
Trade Costs ◽  
Purchasing Power ◽  
Power Parity ◽  
Pricing To Market ◽  
Relative Prices

International relative prices across industrialized countries show large and systematic deviations from relative purchasing power parity. We embed a model of imperfect competition and variable markups in a quantitative model of international trade. We find that when our model is parameterized to match salient features of the data on international trade and market structure in the United States, it can reproduce deviations from relative purchasing power parity similar to those observed in the data because firms choose to price-to-market. We then examine how pricing-to-market depends on the presence of international trade costs and various features of market structure. (JEL F12, F14, F31)

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