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Does PPP hold in the long run? An empirical approach using wavelets.

Berger, David LU (2012) NEKN01 20121
Department of Economics
Abstract
This paper contributes to the debate as to whether or not Purchasing Power Parity (PPP) holds in the long run. This is done by looking at fractionally integrated processes (FIP) and using wavelets in order to obtain an Ordinary Least Squares (OLS) estimate of the long run memory parameter. Firstly, drawing on the theoretical framework behind PPP, this paper outlines the statistical background and terminology relating to fractionally integrated processes, unit roots, and wavelets. Secondly, said concepts are empirically applied and tested. Based on this, the results show that real exchange rates are mean reverting and subject to long swings, which indicates that unit root tests are inappropriate for analyzing exchange rates.
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author
Berger, David LU
supervisor
organization
course
NEKN01 20121
year
type
H1 - Master's Degree (One Year)
subject
keywords
Fractionally Integrated Processes, Wavelets, Time Series Analysis, Purchasing Power Parity, Long Run Memory
language
English
id
2688696
date added to LUP
2012-06-14 11:09:25
date last changed
2012-06-14 11:09:25
@misc{2688696,
  abstract     = {This paper contributes to the debate as to whether or not Purchasing Power Parity (PPP) holds in the long run. This is done by looking at fractionally integrated processes (FIP) and using wavelets in order to obtain an Ordinary Least Squares (OLS) estimate of the long run memory parameter. Firstly, drawing on the theoretical framework behind PPP, this paper outlines the statistical background and terminology relating to fractionally integrated processes, unit roots, and wavelets. Secondly, said concepts are empirically applied and tested. Based on this, the results show that real exchange rates are mean reverting and subject to long swings, which indicates that unit root tests are inappropriate for analyzing exchange rates.},
  author       = {Berger, David},
  keyword      = {Fractionally Integrated Processes,Wavelets,Time Series Analysis,Purchasing Power Parity,Long Run Memory},
  language     = {eng},
  note         = {Student Paper},
  title        = {Does PPP hold in the long run? An empirical approach using wavelets.},
  year         = {2012},
}