Cointegration of price measures: Evidence from the G-7 |
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Authors: | Kay E Strong Subhash C Sharma |
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Institution: | (1) Bowling Green State University Firelands, 44839 Huron, OH;(2) Southern Illinois University, 62901-4515 Carbondale, IL |
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Abstract: | This study addresses index-dependency of empirical results associated with the purchasing power parity (PPP) relationship.
Using four key price indices involving the G-7 nations, empirical tests for long-run co-movement are conducted. A test for
linear restrictions is imposed. The speeds of adjustment are calculated for statistically significant linear combinations.
The speed of the short-run response to disequilibrium differs both within and across countries. The seven-country average
reveals that the CPI has the quickest recovery response to a one-time disturbance. The findings suggest that PPP results are
not dependent upon the choice of index when an explicit set of indices is cointegrated.(JEL F3) |
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