Cointegration Tests of PPP: Do They Also Exhiit Erratic Behaviour?

G.M. Carporale*, C.H. Hanck

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review


We analyse whether tests of ppp exhibit erratic behaviour (as previously reported by caporale et al., 2003 caporale, g. M., pittis, n. And sakellis, p. 2003. Testing for ppp: the erratic behaviour of unit root tests. Conomics letters, 80: 277–84. [google scholar]) even when (possibly unwarranted) homogeneity and proportionality restrictions are not imposed, and trivariate cointegration (stage-three) tests between the nominal exchange rate, domestic and foreign price levels are carried out (instead of stationarity tests on the real exchange rate, as in stage-two tests). We examine the us dollar real exchange rate vis-à-vis 21 other currencies over a period of more than a century, and find that stage-three test statistics are also somewhat erratic, though less than stage-two ones.
Original languageEnglish
Pages (from-to)9-15
Number of pages7
JournalApplied Economics Letters
Issue number1
Publication statusPublished - 16 Jan 2009

Cite this