deviations from purchasing power parity in the long run this paper demonstrates that deviations from purchasing power parity reveal a remarkable and possibly startling consistency with martingale behavior during both fixed and flexible rate periods for a wide variety of countries and in both monthly and annual data since this pattern appears to be much more general than one would expect on the basis of models founded on international commodity arbitrage the paper proposes an alternative explanation which instead relies on financial arbitrage in bonds as the underlying mechanism this paper will demonstrate that deviations from purchasing power parity ppp reveal a remarkable and possibly startling consistency with martingale behavior during both fixed and flexible exchange rate periods for a wide variety of countries and in both monthly and annual data this pattern appears to be much more general than one would expect on the basis of models founded on international commodity arbitrage the paper therefore proposes an alternative explanation which does not presuppose free trade in goods but which instead relies on financial arbitrage in bonds as the underlying mechanism the major implication of the theory and the results is that ppp is as likely to be violated in the long as in the short run as an empirical matter deviations from ppp can be observed for most currencies at any instant see kravis et al 21 stockman 37 and genberg 15 among others these deviations are typically both cumulative and persistent the real exchange rate can remain on either side of parity for lengthy but variable time intervals of a year or more as a consequence the current consensus shared

recent developments of solar energy in india perspectives strategies and future goals abstract power is the most paramount ingredient of infrastructure for growth in economics and welfare of a nation development for sustaining the growth of the indian economy in the existing infrastructure is crucial the power sector of india is one of the largest expanded power sectors in the world due to the continuous increment in electricity demand day by day indian power sector is interfacing some challenges to maintain the balance between the power generation and demand with suffering from supply constraints and shortages in power for maintaining the ratio of generation and demand of power moving from conventional sources to non conventional sources is not only an option it is a necessity the importance of using solar as an energy source in india s perspectives in not only to increase power generation but also to expand energy reliability with considering the environmental social independent and financial beneficial properties this paper analyzes the recent scenario strategies availability future potential policies and development of solar energy in emerging indian power sector

long memory in foreign exchange rates using the geweke porter hudak test we find evidence of long memory in exchange rate data this implies that the empirical evidence of unit roots in exchange rates may not be robust to long memory alternatives fractionally integrated autoregressive moving average arfima models are estimated by both the time domain exact maximum likelihood ml method and the frequency domain approximate ml method impulse response functions and forecasts based on these estimated arfima models are evaluated to gain insight into the long memory characteristics of exchange rates some tentative explanations of the long memory found in the exchange rates are discussed

purchasing power parity as a long run relation dickey fuller and stock watson tests of purchasing power parity ppp as a long run proposition are provided within the cointegration framework proposed by granger since different countries use different weights to construct price indices the traditional constraint that the coefficients on the price indices should be unity in the log linear ppp relation is relaxed the absence of a general ppp relation cannot be rejected at most a ppp relation is indicated in five out of fifteen country pairs that are examined even if a long run ppp relation exists it is not found to be useful in predicting future nominal exchange rates which is consistent with efficient speculative markets

long memory and persistence in aggregate output abstract we examine persistence in u s aggregate output by estimating fractionally integrated arima models these models provide better low frequency approximations to the wold representation than previous stochastic specifications and earlier results on the importance of a permanent component emerge as special cases we find evidence of long memory which induces persistence though this long memory need not be associated with a unit root our point estimates indicate that macroeconomic shocks while persistent are distinctly less persistent than many earlier studies suggest however confidence intervals associated with the long run response are quite wide

fractional cointegration low frequency dynamics and long run purchasing power parity an analysis of the australian dollar over its recent float a relatively new but generalized concept of fractional cointegration is applied to shed some light on the validity of purchasing power parity ppp as a long run equilibrium condition by examining the long run relationship between quarterly consumer price indices and bilateral exchange rates of the australian dollar and seven major oecd trading partners over australia s recent float the paper demonstrates that relaxing the condition that the residual from the cointegration equation must be a i 0 process provides a wide range of cases of parity reversion with processes that are ci 1 d with 0 d 1 findings tend to suggest that while standard tests of cointegration fail to support cointegration between nominal exchange rates domestic and foreign prices and thus the empirical favour for ppp as a long run phenomenon the fractional cointegration analysis permits deviations from equilibrium to follow a fractionally integrated process and hence captures a much wider class of parity or mean reversion

a test of long run purchasing power parity abstract there is a continuing debate whether purchasing power parity holds as a long run equilibrium relationship this note applies an exact small sample pointwise most powerful invariant unit root test to annual long horizon real exchange rates this test finds clear and consistent evidence in favor of the true purchasing power parity relationship

a fractional cointegration analysis of purchasing power parity a generalized notion of cointegration called fractional cointegration is introduced to examine the long run purchasing power parity ppp hypothesis by allowing deviations from equilibrium to follow a fractionally integrated process the fractional cointegration analysis can capture a wider range of mean reversion behavior than standard cointegration analyses this gain is flexibility in modeling subtle mean reverting dynamics is found to be important for a proper evaluation of long run ppp empirical results based on historical data for the 1914 1989 period show that ppp reversion exists and can be characterized by a fractionally integrated process in three out of five countries studied the results support ppp as a long run phenomenon though significant short run deviations from ppp can exist

on the power of dickey fuller tests against fractional alternatives abstract we examine the properties of dickey fuller unit root tests under fractionally integrated alternatives and find that these tests have quite low power

purchasing power parity in the 1920s and the 1970s a note abstract in a recent article of the european economic review frenkel 1981 claims that purchasing power parity ppp held farily well in the 1920s but collapsed in the 1970s frenkel s study does not include the swiss case the present paper aims to answer three questions 1 to what extend does the evidence of the 1920s and the 1970s support ppp for switzerland 2 is there a significant difference of price level and exchange rate behavior between the 1920s and the 1930s as claimed by frenkel and 3 is the swiss experience significantly different from that of the countries

purchasing power parity and the canadian float in the 1950s in this paper the authors present evidence that neither large differences in inflation nor long time periods are necessary for a finding favorable to purchasing power parity evidence from cointegrating regressions and tests of the real exchange rate indicate that purchasing power parity held as a long run constraint between the united states and canada for the period 1950 10 to 1961 5 the authors also find that government intervention can distort purchasing power parity over a finite period once the data were extended beyond the period of the free float the evidence is no longer favorable to purchasing power parity copyright 1991 by mit press

cointegration tests of purchasing power parity the case of swiss exchange rates abstract this paper tests purchasing power parity ppp as a long run equilibrium condition by examining the long run relationshiop between exchange rates and wholesale price indices using cointegration tests this paper avoids some of the problems of previous cointegration tests of ppp by using more precise data pretests and by not imposing a priori restrictions upon the cointegrating vector of the nine combinations of swiss exchange rates and price indices examined cointegration is detected in seven cases thus supporting ppp as a long run equilibrium jel f31 c32

arima and cointegration tests of ppp under fixed and flexible exchange rate regimes real exchange rates between the united states and its major trading partners were calculated for the bretton woods and flexible exchange rate periods unit root tests indicate that purchasing power parity performed poorly in both periods tests for cointegration reveal limited instances in which it is possible to estimate the deviations from ppp as an error correcting model the estimated error correcting models indicate that foreign but not u s prices responded to deviations from ppp frenkel s 1981b finding that purchasing power parity ppp worked better during the 1920s than the 1970s caused considerable controversy for example davutyan and pippenger 1985 contend that the socalled collapse of ppp is a result of an increase in the relative importance of real versus monetary shocks they argue that the 1970s as opposed to the 1920s was characterized by real supply shocks and the international coordination of monetary policies the argument is that ppp did not fail rather there was an increase in the volatility of those factors giving rise to deviations from ppp hakkio 1984 reestimated ppp over the 1920s and 1970s using cross country tests i e sure estimates to improve the efficiency of his estimates he was able to support the hypothesis that ppp worked better in the 1970s than in the 1920s on the other hand papers by adler and lehman 1983 dornbusch 1980 frenkel 1981a junge 1985 and krugman 1978 report findings contrary to the ppp hypothesis moreover kenen and rodrik 1986 find that the volatility of real exchange rates has increased throughout the flexible rate period this paper tries to shed some light on the importance and persistence of the observed deviations from purchasing power parity under alternative exchange rate systems while it is interesting to compare ppp in the 1920s versus the 1970s it is equally useful to compare the 1960s versus the 1970s and 1980s if real supply shocks and lack of monetary coordination are characteristic of the latter period ppp should perform better in the 1960s to illustrate the issues involved consider the following econometric model of relative purchasing power

nominal exchange rate regimes and the real exchange rate abstract two assumptions about the real exchange rate are common in the literature on international finance 1 the real exchange rate is a random walk 2 the time series properties of the real exchange rate depend on the nominal exchange rate regime this paper presents evidence that indicates that the random walk behavior of the real exchange rate is only a characteristic of the post world war ii period moreover our findings also suggest that what is crucial to the real exchange rate behavior is the particular historical period rather than the nominal exchange rate arrangement

cointegration and tests of purchasing power parity nonstationarity in the levels of spot exchange rates and domestic and foreign price indices makes the use of conventional tests of the absolute version of purchasing power parity ppp inappropriate if ppp is true inter country commodity arbitrage ensures that deviations from a linear combination of spot exchange rates and domestic and foreign price levels should be stationary under these conditions exchange rates and price levels should form a cointegrated system we find the null hypothesis of no cointegration cannot be rejected for all five countries thus violating the long run absolute version of ppp

long and short term dynamic causal transmission amongst international stock markets abstract this paper investigates the dynamic causal linkages amongst nine major international stock price indexes in order to gauge the causal transmission patterns we employ very recent methods of i vector error correction modeling and ii level var modeling with possibly integrated and cointegrated processes advocated by i toda and phillips econometrica 61 1993 1367 and ii toda and yamamoto j econometrics 66 1995 225 respectively the paper illustrates how such methods may be appropriately augmented in a compatible fashion to unearth previously unfounded linkage properties inherent amongst a system of stock price indexes in particular we demonstrate that previous research by using ordinary difference vars ignored an important component of linkages displayed purely over the long run this untapped evidence essentially provides robust and very useful information to international financial analysts and investors at a substantive level results of this study tend to support the contention offered by several studies in the literature of significant interdependencies between the established oecd and the asian markets and also the leadership of the us and uk markets over the short and long run the levels var however illustrate the japanese market s influence as an additional long run leader findings seem to be plausible given that these three markets us uk and japan have consistently contributed over 75 of global stock market capitalization over the major part of the sample under consideration at a methodological level this analysis also provides a primer for the wealth of applied financial econometric research focusing on dynamic causal inference which involve systems containing possibly integrated and cointegrated processes

the long memory of the forward premium abstract the estimation of arfima models by approximate maximum likelihood estimation methods reveals the forward premia for the currencies of canada germany and the uk vis a vis the us dollar to be well described by a fractionally integrated process these models imply that all the forward premia are mean reverting although their autocorrelations are quite persistent this degree of persistence has led other studies to erroneously conclude that the forward premia contains a unit root jel c22 e31

a novel test of the monetary approach using black market exchange rates and the johansen juselius cointegration method abstract cointegration is appropriate for testing long run exchange rate theories such as the monetary approach but the post 1973 floating exchange rate period may be too short we confirm the monetary model using longer black market exchange rate series and the johansen juselius cointegration method

an empirical examination of long run purchasing power parity using cointegration techniques this paper presents an empirical analysis of long run purchasing power parity ppp for five major exchange rates using recently developed econometric techniques on the cointegration of economic time series our empirical results are extremely unfavourable to the ppp hypothesis as a long run equilibrium condition even with an allowance made for measurement error and or tranportation costs in particular we are unable to reject the hypothesis of non cointegration of the exchange rate and relative prices for any of the countries concerned far from finding a stable long run proportionality between exchange rates and relative prices our results therefore suggest that they tend to drift apart without bound

all roads lead to risk preference a turnpike theorem for conditionally independent returns an individual is repeatedly offered the opportunity to invest in a risky asset whose retum distribution is unknown because the return distribution is constant over time however he is able to learn about that distribution by observing investment outcomes results are presented regarding the asymptotically optimal investment behavior of a risk averse indi vidual under these circumstances when his aim is to maximize the expected utility of his end of horizon wealth for the class of isoelastic utility functions with constant relative risk averson less than one the optimal investment approaches a constant proportion of wealth the limiting proportion is the same as the proportion put up by the most optimistic individual when the investment opportunity is offered only once these results are then extended by generalizing the class of utility functions under consideration and at the same time restricting the class of possible investment schemes this paper is distinguished from the previous literature by the assumption of conditional independence of returns across periods