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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 119:
Long Run Real Exchange Rates - A Cointegration Analysis

Annika Alexius

Abstract: Long run purchasing power is tested on 16 OECD countries using data from 1960 to 1994, PPP is rejected for some countries (Canada, Japan, Switzerland, Austria, Italy and Spain) and not rejected for other (Sweden, France, Holland and the United Kingdom). For the latter countries, impulse response functions show that half of a disturbance tot the equilibrium real exchange rate disapperars within three years. The method used is Johansen's maximum likelihood approach to cointegration. Simulations are used to obtain empirical critical values of the tests.

Keywords: Purchasing power parity; real exchange rates; (follow links to similar papers)

JEL-Codes: F31; (follow links to similar papers)

37 pages, June 1996

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