Testing purchasing power parity for Japan and the US: A structural-break approach

Dimitrios Dimitriou () and Theodore Simos ()

Japan and the World Economy, 2013, vol. 28, issue C, 53-59

Abstract: In this work we empirically assess the weak and strong forms of purchasing power parity (PPP) hypothesis for the economies of Japan and US. Monthly data for the, traded-goods price indices and the JPY/USD exchange rate are employed for the, period from January 2000 to October 2012. This period includes large shocks, such as, the US subprime crisis and the 2011 Tsunami in Japan. We take into account possible, structural shifts and breaks by employing the class of Lee and Strazicich (2003, 2004) unit, root tests. Empirical analysis suggests that a break corresponding to the start of the US subprime crisis is not rejected. Furthermore, utilizing the Gregory and Hansen (1996) and, Hatemi (2008) cointegration methodologies, the weak form of PPP is not rejected. We, also test the strong PPP hypothesis by using Dynamic Ordinary Least Squares, (DOLS). The empirical evidence rejects the strong form of PPP for the period, preceding the US subprime crisis in contrast to the period after.

Keywords: PPP; Structural breaks; Subprime crisis; Cointegration (search for similar items in EconPapers)
JEL-codes: F3 G1 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0922142513000406
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:japwor:v:28:y:2013:i:c:p:53-59

DOI: 10.1016/j.japwor.2013.07.001

Access Statistics for this article

Japan and the World Economy is currently edited by Robert Dekle and Yasushi Hamao

More articles in Japan and the World Economy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().