Purchasing Power Parity as a long-term memory process: evidence from Canada

• Autores: Jean-François Villeneuve, Jagdish Handa
• Localización: Applied financial economics, ISSN 0960-3107, Vol. 16, Nº. 1-2, 2006 (Ejemplar dedicado a: Special Issue: Purchasing Power Parity and Real Exchange Rates), págs. 109-117
• Idioma: inglés
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• Resumen

  • This paper uses cointegration and fractional cointegration techniques to test for purchasing power parity (PPP) between the Canadian and the US currencies during the floating exchange period from 1974:1 to 2001:12. The focus is on whether the deviations from the cointegrating relationship prossess long memory and may be well-described by a fractionally cointegrated process. The Johansen-Julselius procedure does yield an appropriate cointegration vector, thereby supporting PPP as a long-run relationship. However, it is also found that the deviations from PPP do not follow a fractionally cointegrated stationary process, so that PPP at best holds only weakly even in the long run.