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A New Approach to Testing PPP using VECM: Evidence from the Yen

Brailsford, Timothy John; Penm, Jammie H C; Terrell, Richard


Conventional methods to test for long-term PPP based on the theory of cointegration are typically undertaken in the framework of vector error correction models (VECM). The standard approach in the use of VECMs is to employ a model of full-order, which assumes nonzero entries in all the coefficient matrices. But, the use of full-order VECM models may lead to incorrect inferences if zero entries are required in the coefficient matrices. Specifically, if we wish to test for indirect causality,...[Show more]

CollectionsANU Research Publications
Date published: 2004
Type: Journal article
Source: Research in Finance
DOI: 10.1016/S0196-3821(04)21006-1


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