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A sequential purchasing power parity test for panels of large cross- sections and implications for investors

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Author

Summary, in English

In this paper we use monthly time series data for not less than 64 countries and a new sequential approach to test for purchasing power parity (PPP). The results are strong in that the evidence in favor of PPP is very weak. In fact, for the US-dollar-based exchange rates the evidence is basically non-existent. In order to eliminate the effect of the base currency, we also apply the sequential PPP test to all pairs of exchange rates, and find similarly weak evidence of PPP. However, for those rates where evidence is found, using a technical trading rule, we find evidence of significant profits. The predictability of the stationary pairs is therefore important for investors.

Publishing year

2015

Language

English

Pages

1317-1333

Publication/Series

European Journal of Finance

Volume

21

Issue

15

Document type

Journal article

Publisher

Taylor & Francis

Topic

  • Economics

Keywords

  • sequential unit root tests
  • real exchange rates
  • PPP

Status

Published

ISBN/ISSN/Other

  • ISSN: 1466-4364