Empirical test of purchasing power parity using a time-varying cointegration model for China and the UK
- Authors
- Yoon, Jong Cheol; Min, Dai Hong; Jei, Sang Young
- Issue Date
- 1-5월-2019
- Publisher
- ELSEVIER SCIENCE BV
- Keywords
- Purchasing power parity; Foreign exchange; A time-varying cointegration model; A time-invariant cointegration model
- Citation
- PHYSICA A-STATISTICAL MECHANICS AND ITS APPLICATIONS, v.521, pp.41 - 47
- Indexed
- SCIE
SCOPUS
- Journal Title
- PHYSICA A-STATISTICAL MECHANICS AND ITS APPLICATIONS
- Volume
- 521
- Start Page
- 41
- End Page
- 47
- URI
- https://scholar.korea.ac.kr/handle/2021.sw.korea/65481
- DOI
- 10.1016/j.physa.2019.01.072
- ISSN
- 0378-4371
- Abstract
- This study revisits purchasing power parity (PPP) for China and the United Kingdom (UK) by applying a time-varying cointegration model. When traditional linear unit root tests and a time-invariant cointegration test are performed, we find fixed long-run equilibrium in China and the UK. However, we cannot check the movement of the cointegration vector. To solve this limitation, we perform a time-varying cointegration. The result of a time-varying cointegration model shows that the validity of PPP for China varies over time. On the other hand, PPP does not hold for all periods for the UK. This study shows that the effect of government policy varies depending on the degree of openness. In China with a low degree of openness, export-oriented policies have had a positive impact on PPP. However, in the UK with a high degree of openness, PPP was not valid due to the role of the exchange rate as an asset price and the downward rigidity of wage. (C) 2019 Elsevier B.V. All rights reserved.
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Collections - Graduate School > Department of Economics and Statistics > 1. Journal Articles
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