Using a VECM to test exogeneity and forecastability in the PPP condition

Stefan C. Norrbin, Kevin Reffett, J. I. Yaohua

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

The possibility is explored that purchasing power parity (PPP) can be useful in forecasting exchange rates and/or prices. The first step shows that the spot exchange rate is statistically exogenous in the PPP relationship. The next step investigates the forecastability of the variables in the PPP condition. The results show that a VECM can beat a random walk only in the case of the US price level.

Original languageEnglish (US)
Pages (from-to)87-95
Number of pages9
JournalApplied Financial Economics
Volume7
Issue number1
DOIs
StatePublished - 1997

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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