Cointegration tests of purchasing power parity: the case of Swiss exchange rates

Pippenger, Michael K.

doi:10.1016/0261-5606(93)90009-z

Cited by 56 publications

(20 citation statements)

References 29 publications

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“…1 Abuaf and Jorion (1990), Kim (1990), Becketti et al (1995) and Glen (1992) using relatively long-horizon data; Pippenger (1993) using post-Bretton Woods data, observed evidence supporting PPP. On the other hand, studies rejecting the PPP propositions are abundant: a few of them are Frenkel (1981), Edison (1987), Corbae and Ouliaris (1988), Taylor (1988), Meese and Rogoff (1988), Ballie and Patrick (1989), Gan (1991), Flynn and Boucher (1993), Chowdhury and Sdogati (1993) as well as Zubaidi and Ariff (1997) for five Southeast Asian countries including Malaysia where there was no support found for the theory.…”

Section: Introductionmentioning

confidence: 99%

Deviation from Purchasing Power Parity: Evidence from Malaysia, 1973–1997

Goh

Mithani

2000

Asian Economic Journal

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This paper presents an empirical test of Purchasing Power Parity (PPP) applied to the Malaysia ringgit for the period from 1973 (CPI) and 1984 (WPI) to 1997. Consistent with other research findings, it is detected that real exchange rate follows a random walk. Using multivariate cointegration methodology for the long-run relationship between real exchange rate and certain macro-economic variables, the study provides evidence supporting a long-run relationship between the real exchange rate and the current account balance and government spending, the last two variables have been not included in previous studies of this economy. The causality test between real exchange rate with the current account balance and government spending, however, does not receive support from the error-correction model. This suggests that both government spending and current account balance are not adequate to explain the changes in ringgit real exchange rate. The puzzle still remains unsolved.

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Section: Introductionmentioning

confidence: 99%

Deviation from Purchasing Power Parity: Evidence from Malaysia, 1973–1997

Goh

Mithani

2000

Asian Economic Journal

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“…And vice versa study Pippenger (1993) and Ramirez & Khan (1999) that the PPP hypothesis applies to long-term. Implicit termination of the PPP doctrine indicative barriers (protection) in international trade.…”

Section: Resultsmentioning

confidence: 97%

“…Most of the studies were conducted to support the hypothesis that PPP is valid for long-term (Pippenger 1993;Ramirez & Khan, 1999). While some other studies point to the contrary that the PPP hypothesis does not apply to long-run (Edison, 1987;Menezes & Resende, 1995).…”

Section: Introductionmentioning

confidence: 98%

Validity test of purchasing power parity doctrine: An Indonesian case study

Sidiq

Herawati

2016

EJEM

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The goal of this study is to analyze the doctrine purchasing power parity (PPP) in Indonesia with the case study of the rupiah exchange rate to U.S. dollar. The autoregressive is used to estimate the relationship between the change of exchange rate and the difference Indonesia-USA inflation rate. The data used in this study are quarterly data obtained from the International Financial Statistics (IFS) and Bank Indonesia (BI) with the period 1997Q4-2013Q4. The exchange rate that used in this study is using the rate on rupiah to U S dollar. The price data used consumer price index in Indonesia and the United States with a base year of 2000. The results of this study show, that rupiah to the U.S. dollar is undervalued during the free floating exchange rate system and, the PPP doctrine to the case of the rupiah to the U.S. dollar is not valid in the period of this study. AbstrakTujuan dari penelitian ini untuk menganalisis dokrin paritas daya beli (PPP) dengan studi kasus nilai tukar rupiah terhadap dolar Amerika Serikat. Dalam penelitian ini menggunakan alat analisis autoregresif untuk mengestimasi hubungan antara perubahan nilai tukar rupiah dengan perbedaan tingkat inflasi Indenesia-Amerika Serikat. Data yang digunakan adalah data kuartalan dari Internatioanal Financial Statistics (IFS) dan Bank Indonesia dengan peride waktu 1997Q4-2013Q4. Hasil dari penelitian ini menunjukkan pertama bahwa nilai tukar rupiah terhadap dolar Amerika Serikat dinilai terlalu rendah (undervaled) pada sistem nilai tukar mengambang bebas. Kedua, Dokrin PPP tidak berlaku selama periode penelitian.

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“…One implication of unit root is that the restrictive conditions of proportionality and symmetry restrictions are satisfied in PPP that is nominal exchange rates and aggregate prices move together in a one-to-one fashion in the long run. However, transportation costs, and differences in the composition of price indexes may each lead to violations of proportionality and symmetry in PPP, leading to the looser definition of socalled weak PPP (Taylor, 1988;Cheung and Lai, 1993;Pippenger, 1993). The weak version of the PPP hypothesis states that the nominal exchange rate and aggregate price ratios may move together in equilibrium, but the relationship need not necessarily be one-to-one.…”

Section: Resultsmentioning

confidence: 99%

Strong and Weak Form of Purchasing Power Parity: The Case of Jordan and its Major Trading Partners

Al-Gasaymeh¹,

Kasem²

2015

JIBE

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The aim of this paper is to test two forms of purchasing power parity (PPP), specifically the strong form of PPP and the weak form of PPP between Jordan and its major trading partners namely, Japan, United Kingdom, Turkey, and United State, based on data covering the period of 2000M1-2012M12. First, this paper examines the strong form of PPP to test the stationarity of the real exchange rate. The results show that the real exchange rate in each country is nonstationary. This implied that the long-run PPP fails to hold for all countries. In the second stage, the Johansen cointegration test employed to test the weak form of PPP. The results of cointegration tests showed that there exists a cointegrating relationship for all the countries between exchange rate, domestic and foreign price levels. We conclude that the evidence of weak PPP is found between Jordan and its major trading partners. The unit-root tests of real exchange rates imposed proportionality and symmetry restrictions that nominal exchange rates and aggregate prices move together in a one-to-one fashion. The weak form of the PPP states that the nominal exchange rate and aggregate price ratios may move together in equilibrium, but the relationship need not necessarily be one-to-one. This paper found evidence for weak PPP but not for strong PPP, hence, the conditions of proportionality and symmetry restrictions may be one of the reasons that PPP not hold when being tested empirically.

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Cointegration tests of purchasing power parity: the case of Swiss exchange rates

Cited by 56 publications

References 29 publications

Deviation from Purchasing Power Parity: Evidence from Malaysia, 1973–1997

Deviation from Purchasing Power Parity: Evidence from Malaysia, 1973–1997

Validity test of purchasing power parity doctrine: An Indonesian case study

Strong and Weak Form of Purchasing Power Parity: The Case of Jordan and its Major Trading Partners

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