Testing purchasing power parity: some evidence of the effects of transaction costs

摘要: Empirical tests of purchasing power parity often recognize the problems created by simultaneous equations, but seldom effects measurement error or transaction costs. Presumably because most researchers believe that they are unimportant. We present evidence shows and costs create serious econometric for testing parity. One effect these is conventional can accept PPP when predictive errors relatively large reject it small. Another to bias test cointegration toward accepting null no between exchange rates relative price indexes. also construct a simple model determination how lead regression switiching.