Purchasing power parity in Brazil: a test for fractional cointegration

Denisard Cnéio de Oliveira Alves · Regina Célia Cati · Vera Lúcia Fava

30 citations0/0 files storedApplied Economics

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Abstract

The purpose of this paper is to test the validity of the purchasing power parity (PPP) doctrine in Brazil. Historical data for the period 1855–1996 are considered. The period 1855–1990 is also analysed in order to compare the results with those obtained by Zini and Cati (1993) using the conventional cointegration analysis. This article uses fractional cointegration analysis, a flexible methodology which allows for more subtle forms of mean reversion. The tests performed are those of Geweke and Porter-Hudak (1983), and of Hurvich and Ray (1995). The critical values for both tests are generated by simulation because they are non-standard. The empirical results do not support the absolute PPP hypothesis but the relative PPP holds in the long run.

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References

1987Co-Integration and Error Correction: Representation, Estimation, and Testing 1979Distribution of the Estimators for Autoregressive Time Series with a Unit Root 1988Testing for a Unit Root in Time Series Regression 1981Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root 1979Distribution of the Estimators for Autoregressive Time Series With a Unit Root 1984Testing for Unit Roots in Autoregressive-Moving Average Models of Unknown Order 1980AN INTRODUCTION TO LONG‐MEMORY TIME SERIES MODELS AND FRACTIONAL DIFFERENCING 1996The Purchasing Power Parity Puzzle

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