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Nonlinear Trend and Purchasing Power Parity

Journal of Economics Bibliography

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Title Nonlinear Trend and Purchasing Power Parity
 
Creator LUO, Yinghao; Dushiwangjing B-1507, 123 E. Road, Zhongguanchun, Haidian Dist. Beijing, 100086, P.R.China

luoyh5000@163.com
 
Subject HP filter; Purchasing power parity; Monetary neutrality.
C00; C01; C20; C30.
 
Description Abstract. After the collapse of the Bretton Woods system, the evidence on the purchasing power parity (PPP) in the long run is still a matter of debate. The difficulties of the problem are the possible nonstationarity of relative price indices and nominal exchange rates. The traditional ways to deal with nonstationarity such as unit root model and cointegration have some problems. In this paper, to deal with nonstationarity, we apply the Hodrick－Prescott (HP) trend-cycle filter in real business cycle literature (Hodrick and Prescott, 1981) which can give a nonlinear smooth-trend, and we find that after the 1970s float, the monthly HP trends of US dollar/UK sterling and Deutsche marks/US dollar have certain relevance with their corresponding HP trends of relative consumer price indices. This result indicates that there is no strong evidence to directly deny that the PPP is valid in the long run. In this sense, it is not reliable to directly deny the belief of monetary neutrality!Keywords. HP filter, Purchasing power parity, Monetary neutrality.JEL. C00, C01, C20, C30.
 
Publisher Journal of Economics Bibliography
 
Contributor —
 
Date 2016-09-18
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://www.kspjournals.org/index.php/JEB/article/view/1001
10.1453/jeb.v3i3.1001
 
Source Journal of Economics Bibliography; Vol 3, No 3 (2016): September; 490-497
2149-2387
 
Language eng
 
Relation http://www.kspjournals.org/index.php/JEB/article/view/1001/1047
 
Rights Copyright (c) 2016 Journal of Economics Bibliography
http://creativecommons.org/licenses/by-nc/4.0