Exchange Rate Volatility and Purchasing Power Parity: Does Euro Make Any Difference?
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,...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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Universiti Utara Malaysia
2010-03-01
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| Series: | The International Journal of Banking and Finance |
| Subjects: | |
| Online Access: | https://www.e-journal.uum.edu.my/index.php/ijbf/article/view/8401 |
| _version_ | 1797958199624597504 |
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| author | Meher Manzur Felix Chan |
| author_facet | Meher Manzur Felix Chan |
| author_sort | Meher Manzur |
| collection | DOAJ |
| description | 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.
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| first_indexed | 2024-04-11T00:15:34Z |
| format | Article |
| id | doaj.art-9a787fc18e704ff28b0da0cb8679f8c6 |
| institution | Directory Open Access Journal |
| issn | 2811-3799 2590-423X |
| language | English |
| last_indexed | 2024-04-11T00:15:34Z |
| publishDate | 2010-03-01 |
| publisher | Universiti Utara Malaysia |
| record_format | Article |
| series | The International Journal of Banking and Finance |
| spelling | doaj.art-9a787fc18e704ff28b0da0cb8679f8c62023-01-09T03:08:33ZengUniversiti Utara MalaysiaThe International Journal of Banking and Finance2811-37992590-423X2010-03-0171Exchange Rate Volatility and Purchasing Power Parity: Does Euro Make Any Difference?Meher Manzur0Felix Chan1Curtin University of Technology, AustraliaCurtin University of Technology, AustraliaThis 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. https://www.e-journal.uum.edu.my/index.php/ijbf/article/view/8401Purchasing power parityPrincipal component analysisPooled inflationRandom walk |
| spellingShingle | Meher Manzur Felix Chan Exchange Rate Volatility and Purchasing Power Parity: Does Euro Make Any Difference? The International Journal of Banking and Finance Purchasing power parity Principal component analysis Pooled inflation Random walk |
| title | Exchange Rate Volatility and Purchasing Power Parity: Does Euro Make Any Difference? |
| title_full | Exchange Rate Volatility and Purchasing Power Parity: Does Euro Make Any Difference? |
| title_fullStr | Exchange Rate Volatility and Purchasing Power Parity: Does Euro Make Any Difference? |
| title_full_unstemmed | Exchange Rate Volatility and Purchasing Power Parity: Does Euro Make Any Difference? |
| title_short | Exchange Rate Volatility and Purchasing Power Parity: Does Euro Make Any Difference? |
| title_sort | exchange rate volatility and purchasing power parity does euro make any difference |
| topic | Purchasing power parity Principal component analysis Pooled inflation Random walk |
| url | https://www.e-journal.uum.edu.my/index.php/ijbf/article/view/8401 |
| work_keys_str_mv | AT mehermanzur exchangeratevolatilityandpurchasingpowerparitydoeseuromakeanydifference AT felixchan exchangeratevolatilityandpurchasingpowerparitydoeseuromakeanydifference |