The PPP Hypothesis Revisited: Evidence Using a Multivariate Long-Memory Model

9 Pages Posted: 12 Apr 2013

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Luis A. Gil-Alana

University of Navarra - Department of Economics

Yuliya Lovcha

University of Navarra - Pamplona Campus

Date Written: April 2013

Abstract

This paper examines the PPP hypothesis analysing the behaviour of the real exchange rates vis-à-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.

Keywords: PPP, long memory, multivariate fractional integration

JEL Classification: C22, F31

Suggested Citation

Caporale, Guglielmo Maria and Gil-Alana, Luis A. and Lovcha, Yuliya, The PPP Hypothesis Revisited: Evidence Using a Multivariate Long-Memory Model (April 2013). DIW Berlin Discussion Paper No. 1288, Available at SSRN: https://ssrn.com/abstract=2248676 or http://dx.doi.org/10.2139/ssrn.2248676

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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London South Bank University ( email )

Centre for Monetary and Financial Economics
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CESifo (Center for Economic Studies and Ifo Institute)

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Germany

German Institute for Economic Research (DIW Berlin) ( email )

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Berlin, 10117
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Luis A. Gil-Alana

University of Navarra - Department of Economics ( email )

Campus de Arrosadia
Pamplona, 31006
Spain

Yuliya Lovcha

University of Navarra - Pamplona Campus ( email )

Campus de Arrosadia
Pamplona, 31006
Spain

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