A test of long-run Purchase Power Parity — Evidence for China against the US

Author

Shan, Shan

Author_Institution

Economic Dept., Shandong Jiaotong Univ., Jinan, China

fYear

2010

fDate

17-19 Sept. 2010

Firstpage

774

Lastpage

777

Abstract

This paper aims to re-examines the validity of the PPP hypothesis for China and US from the relative stable period 1997-2006, by employing ADF unit root test, Johansen cointegration procedure and Conditional Parsimonious Vector Error Correction Model. The PPP theory is also tested with restrictions. The causality among the variables is further assessed with the aid of weak exogeneity test. The results show that the PPP is validity without any restriction, but rejected when imposing proportionality and symmetry restrictions. The China price is weakly exogenous with the system. The RMB exchange rate has a tendency towards equilibrium, while the effectiveness of short-run adjustment is bigger than the one in the long-run.

Keywords

pricing; purchasing; ADF unit root test; China price; Johansen cointegration procedure; PPP theory; causality; conditional parsimonious vector error correction model; purchase power parity; weak exogeneity test; Biological system modeling; Equations; Error correction; Exchange rates; Mathematical model; Testing; ADF test; Cointegration; Conditional Parsimonious VECM; Exchange rate; PPP; Restriction;

fLanguage

English

Publisher

ieee

Conference_Titel

Information and Financial Engineering (ICIFE), 2010 2nd IEEE International Conference on

Conference_Location

Chongqing

Print_ISBN

978-1-4244-6927-7

Type

conf

DOI

10.1109/ICIFE.2010.5609469

Filename

5609469