EconStor >
Institut für Weltwirtschaft (IfW), Kiel >
Economics: The Open-Access, Open-Assessment E-Journal - Journal Articles >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/18020
  
Title:Uncover Latent PPP by Dynamic Factor Error Correction Model (DF-ECM) Approach: Evidence from Five OECD Countries PDF Logo
Authors:Qin, Duo
Issue Date:2008
Citation:[Journal:] Economics: The Open-Access, Open-Assessment E-Journal [Volume:] 2 [Issue:] 2008-7 [Pages:] 1-26 [DOI/URN:] doi:10.5018/economics-ejournal.ja.2008-7
Series/Report no.:economics - The Open-Access, Open-Assessment E-Journal 2008-7
Abstract:This study explores a new modelling approach that bridges the gap between multilateral country-level data and the bilateral-model based, goods-market specific purchasing power parity (PPP) hypothesis. Under this approach, PPP is embedded in latent common factors, extractable from a large set of bilateral price disparities, and tested via an error-correction model where the factors act as error-correction leading indicators for exchange rate and inflation. Significant modelling results for five OECD countries using monthly data suggest that the extant finding of insignificant PPP using similar data should be due to errors-in-variables attenuation and that its correction lies in effective construction of latent variables.
Subjects:Law of one price
errors-in-variables
latent dynamic factor
error correction
JEL:C33
F31
C22
Persistent Identifier of the first edition:doi:10.5018/economics-ejournal.ja.2008-7
URL of the first edition:http://www.economics-ejournal.org/economics/journalarticles/2008-7
Creative Commons License:http://creativecommons.org/licenses/by-nc/2.0/de/deed.en
Document Type:Article
Appears in Collections:Economics: The Open-Access, Open-Assessment E-Journal - Journal Articles

Files in This Item:
File Description SizeFormat
economics_2008-7.pdf727.75 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/18020

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.