Does PPP hold in the long run? An empirical approach using wavelets.
(2012) NEKN01 20121Department 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.
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/2688696
- author
- Berger, David LU
- supervisor
- organization
- course
- NEKN01 20121
- year
- 2012
- 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}}, language = {{eng}}, note = {{Student Paper}}, title = {{Does PPP hold in the long run? An empirical approach using wavelets.}}, year = {{2012}}, }