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Autoren: 
Qin, Duo
Datum: 
2007
Reihe/Nr.: 
Economics Discussion Papers 2007-29
Zusammenfassung: 
This study explores a new modelling approach to bridge the gap between the bilateral setting of one ?domestic? economy facing one ?foreign? entity in theory and multilateral country data in reality. Under the approach, purchasing power parity (PPP) is embedded in latent disequilibrium factors, being extracted from a large set of bilateral price disparities; the factors are then used as error-correction leading indicators to explain exchange rate and inflation. Modelling experiments on five OECD countries using monthly data show promising results, which reverse the common belief that PPP is at best a very long-run relationship at the macro level.
Schlagwörter: 
PPP
law of one price
dynamic factor
error correction
JEL: 
C22
F31
C33
Creative-Commons-Lizenz: 
http://creativecommons.org/licenses/by-nc/2.0/de/deed.en
Dokumentart: 
Working Paper

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