Purchasing power parity in Brazil: a test for fractional cointegration |
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| Authors: | Denisard C O Alves Regina Célia Cati Vera Lucia Fava |
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| Institution: | Department of Economics and Graduate Institute of International Economics , National Chung Cheng University , Taiwan E-mail: ecdtk@ccu.edu.tw |
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| Abstract: | The purpose of this paper is to test the validity of the purchasing power parity (PPP) doctrine in Brazil. Historical data for the period 1855–1996 are considered. The period 1855–1990 is also analysed in order to compare the results with those obtained by Zini and Cati (1993) using the conventional cointegration analysis. This article uses fractional cointegration analysis, a flexible methodology which allows for more subtle forms of mean reversion. The tests performed are those of Geweke and Porter-Hudak (1983), and of Hurvich and Ray (1995). The critical values for both tests are generated by simulation because they are non-standard. The empirical results do not support the absolute PPP hypothesis but the relative PPP holds in the long run. |
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