Purchasing Power Parity and the Irish Experience: Unit Roots and Cointegration Tests for Two Industrial Countries
Year: 1995
Author: Fountas, Stilianos, Wu, Jyh-lin
Credit and Capital Markets – Kredit und Kapital, Vol. 28 (1995), Iss. 2 : pp. 201–215
Abstract
This paper uses unit root/stationarity and cointegration tests to test for Purchasing Power Parity between Ireland and two industrial countries. Using monthly data for the post-1981 period, we show that the PPP relationship holds provided the rejection of the symmetry and proportionality hypotheses can be attributed to measurement errors in price indexes. In particular, PPP against Germany and the associated link of Irish inflation to the German inflation rate, implies that Ireland’s EMS membership has been justified. It is also shown that, in agreement with the small, open economy theory of PPP, the adjustment towards the PPP relationship takes place primarily through changes in the domestic price level.
Journal Article Details
Publisher Name: Global Science Press
Language: Multiple languages
DOI: https://doi.org/10.3790/ccm.28.2.201
Credit and Capital Markets – Kredit und Kapital, Vol. 28 (1995), Iss. 2 : pp. 201–215
Published online: 1995-02
AMS Subject Headings: Duncker & Humblot
Copyright: COPYRIGHT: © Global Science Press
Pages: 15
Author Details
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