Uncover latent PPP by dynamic factor error correction model (DF-ECM) approach: Evidence from five OECD countries

This study measures purchasing power parity (PPP) by means of the dynamic-factor errorcorrection model (DF-ECM) approach. Under this new approach, PPP is embedded in latent disequilibrium factors, which are extracted from a large variable set of bilateral price disparities; the factors are then used as error-correction leading indicators to explain exchange rate and inflation. Modelling experiments on five OECD countries using monthly data show promising results, which reverse the common belief that PPP is at best a very long-run relationship at the macro level.

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Year of publication:	2006
Authors:	Qin, Duo
Publisher:	London : Queen Mary University of London, Department of Economics
Subject:	KaufkraftparitÃƒÂ¤t \| Fehlerkorrekturmodell \| Dynamisches Modell \| SchÃƒÂ¤tzung \| Kanada \| Frankreich \| Deutschland \| Japan \| GroÃƒÅ¸britannien \| Purchasing power parity, Law of one price, Dynamic factor, Error correction

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Series:	Working Paper ; 575
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	517653575 [GVK] hdl:10419/62935 [Handle]
Classification:	F31 - Foreign Exchange ; C22 - Time-Series Models ; C33 - Models with Panel Data
Source:	EconStor

Persistent link: https://www.econbiz.de/10010284224