Purchasing power parity: A nonlinear multivariate perspective

Frédérique Bec, Mélika Ben Salem () and Anders Rahbek ()
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Mélika Ben Salem: OEP, Paris-Est University and LEA-INRA (PSE), France
Anders Rahbek: Dept. of Economics, Copenhagen, Denmark

Economics Bulletin, 2008, vol. 6, issue 39, pages 1-6

Abstract: The goal of this paper is to disentangle the respective contributions of the nominal exchange rate and the price differential to the adjustment towards the Purchasing Power Parity relation. To this end, we estimate a multivariate threshold vector equilibrium correction model, whose dynamics is consistent with the PPP in presence of trading costs. European data support the relevance of this model for Belgium, France and Italy, but this is not the case for the G7 data against the US Dollar. Furthermore, the adjustment in European countries seems to have been achieved only through nominal exchange rate changes.

Keywords: Real exchange rate; multivariate threshold model. (search for similar items in EconPapers)
JEL-codes: F3 C1 (search for similar items in EconPapers)
Date: 2008-09-17
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