A fractional cointegration analysis of purchasing power parity
Research output: Journal Publications and Reviews (RGC: 21, 22, 62) › 21_Publication in refereed journal
Author(s)
Detail(s)
| Original language | English |
|---|---|
| Pages (from-to) | 103-112 |
| Journal / Publication | Journal of Business and Economic Statistics |
| Volume | 11 |
| Issue number | 1 |
| Publication status | Published - Jan 1993 |
| Externally published | Yes |
Link(s)
Abstract
A generalized notion of cointegration, called fractional cointegration, is introduced to examine the long-run purchasing power parity (PPP) hypothesis. By allowing deviations from equilibrium to follow a fractionally integrated process, the fractional cointegration analysis can capture a wider range of mean-reversion behavior than standard cointegration analyses. This gain is flexibility in modeling subtle mean-reverting dynamics is found to be important for a proper evaluation of long-run PPP. Empirical results based on historical data for the 1914-1989 period show that PPP reversion exists and can be characterized by a fractionally integrated process in three out of five countries studied. The results support PPP as a long-run phenomenon, though significant short-run deviations from PPP can exist. © 1993 American Statistical Association.
Research Area(s)
- Fractional cointegration, Fractional integration, Purchasing power parity
Citation Format(s)
A fractional cointegration analysis of purchasing power parity. / CHEUNG, Yin-Wong; Lai, Kon S.
In: Journal of Business and Economic Statistics, Vol. 11, No. 1, 01.1993, p. 103-112.Research output: Journal Publications and Reviews (RGC: 21, 22, 62) › 21_Publication in refereed journal
