Testing Purchasing Power Parity in the Framework of Vector Error Correction Modelling - Financial and Economic Forecasting (Chapter 14)

2003 ◽  
Author(s):  
Jack H.W. Penm ◽  
Jammie H. Penm ◽  
R. Deane Terrell
Keyword(s):  
Error Correction ◽  
Purchasing Power Parity ◽  
Purchasing Power ◽  
Power Parity ◽  
Economic Forecasting ◽  
Vector Error Correction ◽  
Vector Error

scholarly journals Reconnoitering the Impact of Economic Variables on Fruit Pulp Export from Tamil Nadu

2020 ◽  
Vol 8 (4S5) ◽  
pp. 58-65
Keyword(s):  
Purchasing Power Parity ◽  
Tamil Nadu ◽  
Time Frame ◽  
Purchasing Power ◽  
Fruit Pulp ◽  
Power Parity ◽  
Vector Error Correction ◽  
Vector Error ◽  
Long Run ◽  
The Impact

The objective of the was to determine the impact of the Price of the commodity, Purchasing Power Parity of the host country, Population of the importing country and Distance between the trading countries with respect to the quantity of fruit pulp export from Tamil Nadu. The researchers adopted analytical research data, wherein data during the time frame of 2017 was used. The analysis conducted on data indicates that there is a long run relationship between the Price, Purchasing Power Parity, Population and Distance with respect to the quantity of fruit pulp export. Furthermore, the VECM [Vector Error Correction Model] indicates error estimates can be estimated effectively for the model framed using study variables considered.

scholarly journals TIME-VARYING COINTEGRATION

2010 ◽  
Vol 26 (5) ◽  
pp. 1453-1490 ◽  
Author(s):  
Herman J. Bierens ◽  
Luis F. Martins
Keyword(s):  
Purchasing Power Parity ◽  
Ratio Test ◽  
Time Varying ◽  
Power Parity ◽  
Chi Square ◽  
Correction Model ◽  
Vector Error Correction ◽  
Vector Error ◽  
Nominal Exchange Rates ◽  
Time Invariant

In this paper we propose a time-varying vector error correction model in which the cointegrating relationship varies smoothly over time. The Johansen setup is a special case of our model. A likelihood ratio test for time-invariant cointegration is defined and its asymptotic chi-square distribution is derived. We apply our test to the purchasing power parity hypothesis of international prices and nominal exchange rates, and we find evidence of time-varying cointegration.

TESTING PPP BY MEANS OF ZNZ PATTERNED VECM

2008 ◽  
Vol 11 (04) ◽  
pp. 345-362
Author(s):  
T. J. BRAILSFORD ◽  
JACK PENM ◽  
R. D. TERRELL
Keyword(s):  
Purchasing Power Parity ◽  
Financial Time Series ◽  
Power Parity ◽  
Vector Error Correction ◽  
Financial Variables ◽  
Statistical Inferences ◽  
Vector Error ◽  
Dynamic Relationships ◽  
Vector Error Correction Models ◽  
Adjustment Mechanisms

Vector error-correction models (VECM) are increasingly being used to capture dynamic relationships between financial variables. Estimation and interpretation of such models can be enhanced if zero restrictions are allowed in the coefficient matrices. Conventional use of full-order models may weaken the power of statistical inferences due to over-parameterization. The paper demonstrates the usefulness of this approach for the analysis of exchange rate relationships. Specifically, the paper examines the relationship between the money supply and the Euro and provides a test of purchasing power parity (PPP) in Japan. The latter test results shed light on the adjustment mechanisms through which PPP is achieved. In addition, it is clear that the proposed ZNZ patterned VECM modeling provides better insights from this kind of financial time-series analysis. The paper also shows that causality detection in an I(d) system can be revealed identically from the ZNZ patterned VECMs or the equivalent VAR models.

scholarly journals Analisis Purchasing Power Parity Indonesia Menggunakan Pendekatan Error Correction Model

2012 ◽  
Vol 2 (2) ◽  
Author(s):  
Aula Ahmad Hafidh
Keyword(s):  
Exchange Rates ◽  
Error Correction ◽  
Purchasing Power Parity ◽  
Real Exchange Rates ◽  
Error Correction Model ◽  
Power Relationship ◽  
Purchasing Power ◽  
Power Parity ◽  
Correction Model ◽  
The Mean

This papers tests for Purchasing Power Parity (PPP) between Indonesia and its main trading partner United States (US) using Error Correction Model (ECM). We examine the mean-reverting properties of real exchange rates. The tests shows that PPP is hold underlying the theory, purchasing power relationship is shown to exist. The model is, furthermore, shown to have significant forecasting power

On the Validity of Purchasing Power Parity: The Case of Sierra Leone

2020 ◽  
Vol 11 (1) ◽  
pp. 18 ◽  
Author(s):  
Mohamed JABBIE ◽  
Emerson Abraham JACKSON
Keyword(s):  
Exchange Rate ◽  
Error Correction ◽  
Sierra Leone ◽  
Purchasing Power Parity ◽  
The United States ◽  
Purchasing Power ◽  
Power Parity ◽  
Price Differential ◽  
Short Run ◽  
The Exchange Rate

This paper attempts to empirically validate the Purchasing Power Parity (PPP) theory in the context of Sierra Leone. To achieve this objective, cointegration and error correction techniques were utilized to account for both long and short-run dynamics over the period 2007Q1 to 2019Q1. The Engel-Granger cointegration technique was utilized to ascertain the long-run relationship between the exchange rate and the price differential between Sierra Leone and the United States of America, while the redundant variable test was used to attain the parsimonious short-run error correction model. The results indicated a cointegrating relationship, while the coefficient on the price differential was greater than one (1), reflecting that the PPP does not hold for Sierra Leone. Moreover, the short-run results showed a rejection of the theory and rather endorses the presence of depreciation inertia, where past depreciation of the exchange rate is a major determinant of its current depreciating trend.

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