A Fractional Cointegration Analysis of Purchasing Power Parity.
A generalized.notion of cointegration, called fractional cointegration, is introduced to examine the long-run purchasing power parity hypothesis. By allowing deviations from equilibrium to follow a fractional process, the fractional cointegration analysis can capture a wider range of mean reversion behavior than standard cointegration analyses. This gain in flexibil ity in modeling mean-reverting dynamics is found to be important for evaluating long-run purchasing power parity. Empirical results show that purchasing power parity reversion exists and can be characterized by a fractional process for several countries studied. The results support purchasing power parity as a long-run phenomenon, though significant short-run deviations can exist.
Year of publication: |
1993
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Authors: | Cheung, Yin-Wong ; Lai, Kon S |
Published in: |
Journal of Business & Economic Statistics. - American Statistical Association. - Vol. 11.1993, 1, p. 103-12
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Publisher: |
American Statistical Association |
Saved in:
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