Stephen G. Hall
Is the relationship between prices and exchange rates homogeneous?
Hall, Stephen G.; Hondroyiannis, George; Kenjegaliev, Amangeldi; Swamy, P. A. V. B.; Tavlas, George S.
Dr Amangeldi Kenjegaliev A.Kenjegaliev@hull.ac.uk
Lecturer in Economics
P. A. V. B. Swamy
George S. Tavlas
Empirical tests of purchasing power parity (PPP) are implicitly based on the conditions of symmetry and proportionality of the price coefficients. We investigate a separate condition, which we term homogeneity. Specifically, while there may be factors that drive a wedge between prices and exchange rates, when these factors are held constant we would expect a change in exchange rates to be associated with a proportional, or homogeneous, change in prices. To test for the existence of homogeneity in prices, we conduct two experiments. First, we apply a time-varying-coefficient procedure to nine euro-area countries as well as the euro area as a whole during the (monthly) sample period, 1999:M1 to 2011:M3. Second we apply the same procedure to the same group of countries, plus Canada, Japan and Mexico, over the longer period, 1957:M4 to 2011:M3. We find that averages of the price coefficients, corrected for specification biases, are uniformly homogeneous in the long run, providing strong support for PPP.
|Publication Date||Oct 1, 2013|
|Journal||Journal of international money and finance|
|Peer Reviewed||Peer Reviewed|
|APA6 Citation||Hall, S. G., Hondroyiannis, G., Kenjegaliev, A., Swamy, P. A. V. B., & Tavlas, G. S. (2013). Is the relationship between prices and exchange rates homogeneous?. Journal of International Money and Finance, 37, 411-438. https://doi.org/10.1016/j.jimonfin.2013.06.014|
|Keywords||Purchasing power parity; Symmetry; Proportionality; Homogeneity; Generalized cointegration; Time-varying coefficients|
|Copyright Statement||© 2016, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/|
|Additional Information||Author's accepted manuscript of article published in: Journal of international money and finance, 2013, v.37|
© 2016, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
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