Random walks and cointegration relationships in international parity conditions between Germany and USA for the post Bretton-Woods period

Bevilacqua, Franco (2006). Random walks and cointegration relationships in international parity conditions between Germany and USA for the post Bretton-Woods period. UNU-MERIT.

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  • Author Bevilacqua, Franco
    Title Random walks and cointegration relationships in international parity conditions between Germany and USA for the post Bretton-Woods period
    Publication Date 2006
    Publisher UNU-MERIT
    Abstract This paper is based on a recent paper by Juselius and MacDonald (2000, 2003) and two `Journal of Econometrics' article s by Juselius (1995) and Johansen and Juselius (1992). The basic feature in all these articles is that the joint modelling of international parity conditions, namely ppp and uip, produces stationary relations showing an important interaction between the goods and the capital markets. We replaced the consumer price index (CPI) considered by Juselius and MacDonald with the producer price index (PPI) to check whether the international parity relationships still cointegrate. To our surprise we outstandingly produced similar results to those by Juselius and MacDonald, suggesting that the cointegration relationships in the international parity conditions hold also if we use different measures of prices. What is striking in our results is that even if there is no direct cointegration relation between CPI and PPI both in Germany and USA, the cointegration relation found between ppp and uip still holds notwithstanding of how ppp is measured.
    Keyword PPP
    UIP
    Fisher parity
    JEL E31
    E43
    F31
    F32
    Copyright Holder UNU-MERIT
    Copyright Year 2006
    ISSN 1871-9872
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    Created: Wed, 11 Dec 2013, 16:07:26 JST