On long- and short-run purchasing power parity

MacDonald, R. and Marsh, I. W. (1994) On long- and short-run purchasing power parity. In: Kaehler, J. and Kugler, P. (eds.) Econometric Analysis of Financial Markets. Series: Studies in empirical economics. Physica-Verlag HD, pp. 23-46. ISBN 9783642486685 (doi:10.1007/978-3-642-48666-1_3)

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We use the Johansen maximum likelihood estimation procedure to test for longrun purchasing power parity (PPP) for a variety of exchange rates over the recent float. We find considerable evidence of weak-form PPP in contrast to most of the extant literature. Such long-run relationships are then used to form dynamic error correction models for each currency. In many cases our dynamic PPP models are able to outperform a random walk alternative in out-of-sample tests of forecast accuracy.

Item Type:Book Sections
Glasgow Author(s) Enlighten ID:MacDonald, Professor Ronald
Authors: MacDonald, R., and Marsh, I. W.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Publisher:Physica-Verlag HD

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