Does the single currency for EU resolve the exchange rate volatility and purchasing power parity puzzle?
This paper provides a new test of PPP and its relevance for the euro. Principal component analysis (PCA) is introduced to construct a ?pooled? measure of inflation for the 12 euro countries. This measure is used to test the PPP condition for the euro against three major currencies, namely, those of...
| Main Authors: | , |
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| Format: | Working Paper |
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School of Economics and Finance, Curtin Business School
2008
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| Online Access: | http://hdl.handle.net/20.500.11937/24304 |
| _version_ | 1848751391143624704 |
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| author | Manzur, Meher Chan, Felix |
| author_facet | Manzur, Meher Chan, Felix |
| author_sort | Manzur, Meher |
| building | Curtin Institutional Repository |
| collection | Online Access |
| description | This paper provides a new test of PPP and its relevance for the euro. Principal component analysis (PCA) is introduced to construct a ?pooled? measure of inflation for the 12 euro countries. This measure is used to test the PPP condition for the euro against three major currencies, namely, those of the USA, UK and Japan. The test results are then used to measure the speed of adjustment of the deviations from PPP 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. |
| first_indexed | 2025-11-14T07:51:59Z |
| format | Working Paper |
| id | curtin-20.500.11937-24304 |
| institution | Curtin University Malaysia |
| institution_category | Local University |
| last_indexed | 2025-11-14T07:51:59Z |
| publishDate | 2008 |
| publisher | School of Economics and Finance, Curtin Business School |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | curtin-20.500.11937-243042017-01-30T12:42:08Z Does the single currency for EU resolve the exchange rate volatility and purchasing power parity puzzle? Manzur, Meher Chan, Felix random walk Principal component analysis Pooled inflation Purchasing power parity This paper provides a new test of PPP and its relevance for the euro. Principal component analysis (PCA) is introduced to construct a ?pooled? measure of inflation for the 12 euro countries. This measure is used to test the PPP condition for the euro against three major currencies, namely, those of the USA, UK and Japan. The test results are then used to measure the speed of adjustment of the deviations from PPP 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. 2008 Working Paper http://hdl.handle.net/20.500.11937/24304 School of Economics and Finance, Curtin Business School fulltext |
| spellingShingle | random walk Principal component analysis Pooled inflation Purchasing power parity Manzur, Meher Chan, Felix Does the single currency for EU resolve the exchange rate volatility and purchasing power parity puzzle? |
| title | Does the single currency for EU resolve the exchange rate volatility and purchasing power parity puzzle? |
| title_full | Does the single currency for EU resolve the exchange rate volatility and purchasing power parity puzzle? |
| title_fullStr | Does the single currency for EU resolve the exchange rate volatility and purchasing power parity puzzle? |
| title_full_unstemmed | Does the single currency for EU resolve the exchange rate volatility and purchasing power parity puzzle? |
| title_short | Does the single currency for EU resolve the exchange rate volatility and purchasing power parity puzzle? |
| title_sort | does the single currency for eu resolve the exchange rate volatility and purchasing power parity puzzle? |
| topic | random walk Principal component analysis Pooled inflation Purchasing power parity |
| url | http://hdl.handle.net/20.500.11937/24304 |