Random walks and cointegration relationships in international parity conditions between Germany and USA for the post Bretton-Woods period

Franco Bevilacqua ()
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Franco Bevilacqua: United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology

No 2006-012, MERIT Working Papers from United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT)

Abstract: This paper is based on a recent paper by Juselius and MacDonald (2000, 2003) and two `Journal of Econometrics' article s by Juselius (1995) and Johansen and Juselius (1992). The basic feature in all these articles is that the joint modelling of international parity conditions, namely ppp and uip, produces stationary relations showing an important interaction between the goods and the capital markets. We replaced the consumer price index (CPI) considered by Juselius and MacDonald with the producer price index (PPI) to check whether the international parity relationships still cointegrate. To our surprise we outstandingly produced similar results to those by Juselius and MacDonald, suggesting that the cointegration relationships in the international parity conditions hold also if we use different measures of prices. What is striking in our results is that even if there is no direct cointegration relation between CPI and PPI both in Germany and USA, the cointegration relation found between ppp and uip still holds notwithstanding of how ppp is measured.

Keywords: ppp; uip; Fisher parity (search for similar items in EconPapers)
JEL-codes: E31 E43 F31 F32 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:unm:unumer:2006012

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