Manzur, Meher and Chan, Felix (2010) Exchange Rate Volatility and Purchasing Power Parity: Does Euro Make Any Difference? The International Journal of Banking and Finance, 7 (1). pp. 99-118. ISSN 1617-722

PDF Restricted to Registered users only Download (1MB)

Abstract

This paper provides a new test of the purchasing power parity (PPP) and its relevance for the Euro. Principal component analysis (PCA) is employed to construct a pooled measure of inflation for 12 Euro-currency countries. This measure is used to test the PPP for Euro against three major currencies, namely, those of the Japan, UK and USA. The test results are then used to measure the speed of adjustment of the deviations from parity using rolling and recursive regressions procedures.Finally, the forecasting accuracy of the PPP-based Euro exchange rates is compared with those given by the random walk model, and the synthetic Euro series provided by the European Central Bank. In general, the results are supportive of PPP.

Item Type:	Article
Uncontrolled Keywords:	Purchasing power parity, Principal component analysis, Pooled inflation, Random walk.
Subjects:	H Social Sciences > HG Finance
Divisions:	School of Economics, Finance & Banking
Depositing User:	Mrs. Norazmilah Yaakub
Date Deposited:	25 Oct 2018 02:31
Last Modified:	25 Oct 2018 02:31
URI:	https://repo.uum.edu.my/id/eprint/25062

Actions (login required)

View Item