Cointegration of price measures: Evidence from the G-7

Kay Strong () and Subhash Sharma ()

Journal of Economics and Finance, 2002, vol. 26, issue 1, 122 pages

Abstract: This study addresses index-dependency of empirical results associated with the purchasing power parity (PPP) relationship. Using four key price indices involving the G-7 nations, empirical tests for long-run co-movement are conducted. A test for linear restrictions is imposed. The speeds of adjustment are calculated for statistically significant linear combinations. The speed of the short-run response to disequilibrium differs both within and across countries. The seven-country average reveals that the CPI has the quickest recovery response to a one-time disturbance. The findings suggest that PPP results are not dependent upon the choice of index when an explicit set of indices is cointegrated.(JEL F3) Copyright Springer 2002

Date: 2002
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DOI: 10.1007/BF02744456

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