Examining world-wide purchasing power parity

Tor Jacobson () and Marianne Nessén ()

Empirical Economics, 2004, vol. 29, issue 3, 463-476

Abstract: We examine long-run PPP between Germany, Great Britain, Japan and the United States over the period 1930–1996 using multivariate cointegration techniques. Bilateral PPP between the four countries is examined in one system (as opposed to e.g. series of trivariate systems). In all of the statistical analysis, asymptotic tests are augmented by parametric bootstrap analogues, whereby we reduce, if not eliminate, the size distortion typically present in small-sample studies. The cointegration analysis provides support for the necessary conditions for PPP (i.e. cointegrating relations are found) but not for the sufficient conditions (i.e., the coefficients in the cointegrating relations are far from what PPP predicts). These results are at odds with results from other studies that also analyze long-horizon data sets. Copyright Springer-Verlag 2004

Keywords: Long-run purchasing power parity; multivariate cointegration analysis; bootstrap inference; F30; C15; C32 (search for similar items in EconPapers)
Date: 2004
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DOI: 10.1007/s00181-003-0176-2

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