The PPP hypothesis revisited. Evidence using multivariate long memory models

  1. Caporale, G. M.
  2. Gil Alaña, Luis A.
  3. Lovcha, Y.
Journal:
Empirical Economics Letters

ISSN: 1681-8997

Year of publication: 2018

Volume: 17

Issue: 5

Pages: 563 - 567

Type: Article

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More publications in: Empirical Economics Letters

Abstract

This paper examines the PPP hypothesis analysing the behaviour of the real exchange rates vis-a-vis the US dollar for four major currencies (namely, the Canadian dollar, the euro, the Japanese yen and the British pound). An innovative approach based on fractional integration in a multivariate context is applied to annual data from 1970 to 2011. Long memory is found to characterise the Canadian dollar, the British pound and the euro, but in all four cases the results are consistent with the relative version of PPP.