A Test of PPP based on the Largest Principal Component of Real Exchange Rates of the main OECD Economies

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Abstract

A unit root test is used to reject non-stationarity of the largest principal component of nine OECD bilateral real exchange rates over the recent float. Hence, support for purchasing power parity (PPP) over this period is obtained using a standard classical hypothesis test.
Original languageEnglish
Pages (from-to)225-231
Number of pages6
JournalEconomics Letters
Volume51
Issue number2
Publication statusPublished - May 1996

Keywords

  • exchange rates
  • purchasing power parity
  • unity root tests
  • principal components

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