A Cointegration Analysis of Purchasing Power Parity and Country Risk

Su-Yin Cheng; Jong-Shin Wei; Han Hou
December 2008
International Journal of Business & Economics;2008, Vol. 7 Issue 3, p199
Academic Journal
This paper examines purchasing power parity (PPP) for 61 countries using the panel conintegration method developed by Westerlund (20007). After controlling for cross-sectional dependence, the results show that weak PPP is stronger for Latin American countries and for countries with moderate country risk, defined in terms of political, economic, and financial components, with direct or indirect implications for the validity of PPP. Compared with a single country risk captures more information for explaining the validity of the PPP hypothesis.


Related Articles

  • RECURSIVE COINTEGRATION ANALYSIS OF PURCHASING POWER PARITY: AN APPLICATION TO ASIAN COUNTRIES. Nusair, Salah A.; Abumustafa, Naser I. // American Economist;Fall2012, Vol. 57 Issue 2, p196 

    Previous studies have utilized conventional cointegration tests that are based on the assumption that the long-run purchasing power parity (PPP) relationship is stable over the sample period. This assumption can be misleading if there were significant economic and policy changes over the sample...

  • Revisiting Purchasing Power Parity for Central and East European Countries. Su, Chi-Wei; Chang, Hsu-Ling // Eastern European Economics;Jan/Feb2011, Vol. 49 Issue 1, p5 

    This study applies nonlinear cointegration to assess exchange rates with the corresponding relative prices and aggregate price levels for seven Central and East European countries (CEECs). We find that nonparametric rank testing procedures have higher power than parametric testing procedures, as...

  • TAXA DE CÂMBIO E PARIDADE DE PODER DE COMPRA NO BRASIL: ANÁLISE ECONOMÉTRICA COM QUEBRA ESTRUTURAL. Palaia, Daniel; Holland, Márcio // Brazilian Journal of Applied Economics;2010, Vol. 14 Issue 1, p5 

    The main aim of this paper is to test the absolute version of the purchasing power parity in Brazil, according to econometric procedures that allow the existence of structural breaks in the studied times series. Even controlling all the tests for structural breaks, including cointegration...

  • A Cointegration Analysis of Purchasing Power Parity: 1973-96. Ramirez, Miguel D.; Khan, Shahryar // International Advances in Economic Research;Aug99, Vol. 5 Issue 3, p369 

    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 error-correction...

  • The Time-Series Properties of House Prices: A Case Study of the Southern California Market. Gupta, Rangan; Miller, Stephen // Journal of Real Estate Finance & Economics;Apr2012, Vol. 44 Issue 3, p339 

    We examine the time-series relationship between house prices in eight Southern California metropolitan statistical areas (MSAs). First, we perform cointegration tests of the house price indexes for the MSAs, finding seven cointegrating vectors. Thus, the evidence suggests that one common trend...

  • An Econometric Estimation of Import Demand Function for Cote D'Ivoire. Constant, N'guessan Bi Zambe Serge; Yaoxing Yue // International Journal of Business & Management;Feb2010, Vol. 5 Issue 2, p77 

    This paper examines a disaggregated import demand model for Cote d'Ivoire using time series data for the period 1970-2007. An Autoregressive Distributed Lag (ARDL) modeling process is employed to capture the effect of final consumption expenditure, the investment expenditure, the export...

  • The Application of Purchasing-Power Parity to Ukraine by Using the Cointegration Approach. Varamini, Hossein; Lisachuk, Helena G. // Russian & East European Finance & Trade;May/Jun98, Vol. 34 Issue 3, p60 

    Presents information on a study which applied the cointegration technique to test the theory of purchasing-power parity (PPP) for Ukraine since its independence. Rationale for applying the PPP theory to Ukraine; Cointegration methodology and its application to the study; Concluding remarks.

  • KREDÄ° HACMÄ° ARTIÅžININ CARÄ° AÇIÄžA ETKÄ°SÄ°: ÇOKLU YAPISAL KIRILMALI EÅžBÃœTÃœNLEÅžME ANALÄ°ZÄ°. GÖÇER, İsmet; MERCAN, Mehmet; PEKER, Osman // Istanbul University Econometrics & Statistics e-Journal;2013, Vol. 18 Issue 1, p1 

    In this study, the relationship between total domestic credit volume and current account deficit in Turkey is investigated with the unit root test with multiple structural breaks of Carrion-i-Silvestre (2009) and cointegration test with multiple structural breaks of Maki (2012) by using...

  • The demand for money in Jamaica: a cointegration approach.  // Money Affairs;Jan-Jun1991, Vol. 4 Issue 1, p19 

    The article estimates the function for money demand in Jamaica. By using econometric cointegration theory and an error correction model, the author demonstrates that money demand in Jamaica is a function of prices, real income, foreign interest rates, and money demand lagged. Data from 1973-1986...


Read the Article


Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics