Causal and Frequency Analyses of Purchasing Power Parity

Jun Nagayasu

No 119, DSSR Discussion Papers from Graduate School of Economics and Management, Tohoku University

Abstract: A century after its development, the purchasing power parity theorem, which links exchange rates with prices, remains one of the most popular and influential economic theories. This study examines the relationship between exchange rates and prices from the perspectives of causality and spillovers. Using a panel of countries and advanced statistical methods, we estimate spillovers for all combinations of origins and destinations at di erent frequency bands, and show that their relationship is time-varying and multidirectional and has some validity at short and long time horizons. Furthermore, using exchange rate regimes, economic structures, currency crises, and trade openness, we identify economic conditions influencing the size and direction of spillovers.

Pages: 41 pages
Date: 2021-01
New Economics Papers: this item is included in nep-mon and nep-opm
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Citations: View citations in EconPapers (5)

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http://hdl.handle.net/10097/00129978

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Journal Article: Causal and frequency analyses of purchasing power parity (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:toh:dssraa:119

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