Evidence on PPP from a cointegration test with multiple structural breaks

Narayan, Paresh, Narayan, Seema and Prasad, Arti 2009, Evidence on PPP from a cointegration test with multiple structural breaks, Applied economics letters, vol. 16, no. 1, pp. 5-8.

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Title Evidence on PPP from a cointegration test with multiple structural breaks
Author(s) Narayan, Paresh
Narayan, Seema
Prasad, Arti
Journal name Applied economics letters
Volume number 16
Issue number 1
Start page 5
End page 8
Publisher Routledge
Place of publication London, England
Publication date 2009-01
ISSN 0003-6846
1466-4283
Summary Despite a plethora of studies on purchasing power parity (PPP), those that take a cointegration approach have found mixed evidence on PPP. The goal of this article is to obviate existing tensions in the PPP literature by using a simple test for cointegration between nominal exchange rate and relative prices that accounts for multiple structural breaks. We find that for 14 out of 15 OECD countries, there is evidence of a cointegration relationship between nominal exchange rate and relative prices at the 5% level. Only for Japan, we find evidence for cointegration at the 2.5% level. These results suggest overwhelming evidence of support for PPP for the OECD countries.
Language eng
Field of Research 140212 Macroeconomics (incl Monetary and Fiscal Theory)
Socio Economic Objective 910108 Monetary Policy
HERDC Research category C1 Refereed article in a scholarly journal
Copyright notice ©2009, Taylor & Francis
Persistent URL http://hdl.handle.net/10536/DRO/DU:30022699

Document type: Journal Article
Collections: Faculty of Business and Law
School of Accounting, Economics and Finance
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