A cointegration analysis of purchasing power parity: 1973–96

Miguel Ramirez and Shahryar Khan

International Advances in Economic Research, 1999, vol. 5, issue 3, 369-385

Abstract: This paper tests the purchasing power parity (PPP) hypothesis for five industrial countries using cointegration and error-correction modeling. The cointegration test indicated that for all countries the PPP hypothesis holds in the long run but not in the short run. Further, the errorcorrection models suggested that deviations of the actual exchange rate from its long-run PPP value were corrected in subsequent periods. Finally, the high frequency monthly data models did a better job of tracking the turning points of the actual data than the low-frequency quarterly and yearly models. Copyright International Atlantic Economic Society 1999

Date: 1999
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DOI: 10.1007/BF02296418

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