Purchasing power parity and structural instability in the US/UK exchange rate

Michail Karoglou; Bruce Morley

doi:10.1016/j.intfin.2012.05.001

Purchasing power parity and structural instability in the US/UK exchange rate

Research output: Contribution to journal › Article › peer-review

Abstract

The aim of this study is to determine if nonlinearities have affected purchasing power parity (PPP) since 1885. Also using recent advances in the econometrics of structural change we segment the sample space according to the identified breaks and look at whether the PPP condition holds in each sub-sample and whether this involves linear or non-linear adjustment. Our results suggest that during some sub-periods, PPP holds, although whether it holds or not and whether the adjustment is linear or non-linear, depends primarily on the type of exchange rate regime in operation at any point in time.

Original language	English
Pages (from-to)	958-972
Number of pages	15
Journal	Journal of International Financial Markets, Institutions and Money
Volume	22
Issue number	4
DOIs	https://doi.org/10.1016/j.intfin.2012.05.001
Publication status	Published - Oct 2012

Bibliographical note

Keywords

purchasing power parity
structural breaks
non-linear cointegration

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10.1016/j.intfin.2012.05.001

Purchasing Power Parity and Structural Instability in the US/UK Exchange Rate
© 2012, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
Accepted author manuscript, 479 KBLicence: CC BY-NC-ND 3.0

http://opus.bath.ac.uk/31031/

Cite this

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Purchasing power parity and structural instability in the US/UK exchange rate

Abstract

Bibliographical note

Keywords

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