Title: Cointegration between exchange rates and relative prices: another view
Abstract: In this paper the cointegration property of exchange rates and relative prices, as implied by the purchasing power parity theory (PPP), is reexamined using a time-varying parameter (TVP) approach. Such an approach recognizes the possibility that the lack of cointegration between exchange rates and relative prices found in recent literature may be the result of the nonstationarity of the cointegrating regression parameters themselves. The tests of cointegration in a TVP framework indicate that PPP is better supported and point to the presence of structural instability in the long run equilibrium relationship between exchange rates and relative prices.
Publication Year: 1990
Publication Date: 1990-11-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 70
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