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)

Abstract

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
• Status: Published
• 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
• ISBN: 9783642486685