Comparative Analysis into Purchasing Power Parity (PPP) – Assessment of the United States and Competing Economies (2020)
This dissertation examines long-run purchasing power parity (PPP) between the United States and other competing countries and regions using monthly data from 1960 to 2019. Mainstream methods of PPP test and most influential researches are reviewed. Three methods of PPP testing – Unit Root Test, Cointegration Test, Panel Unit Root Test have been applied in this paper. We identify that PPP holds between the US and a certain number of countries by analysing the test results. Also, the results of PPP test between the US and its top 10 trading partners have been specifically investigated and elaborated.
This dissertation highlights that both the Multivariable co-integration tests and the bivariable Cointegration tests are applied in order to find out the effect of prior restrictions on the results. Then, this chapter examines whether the PPP holds between the US and its top 10 trading partners countries minus China with the panel unit root test. Finally, in the sixth chapter, this paper concludes that PPP holds in 41 countries out of 176 countries, and among the US top 10 trading partners, only China, Canada and India do not have solid evidence supporting PPP.
- 10,000 words – 34 pages in length
- Excellent use of literature
- Excellent analysis of subject area
- Well written throughout
- Ideal for finance and economics students
1 – Introduction
2 – Literature Review
Two Versions of the PPP Theory
Evolution of PPP Test
Simple Static PPP Test
Unit Root Test
Cointegration Test
Panel Unit Root Test
Non-linear Test
US and Related Tests
3 – Empirical Framework
Tests for a Unit Root in the Real Exchange Rate
Cointegration Test
Panel Unit Root Test
4 – Data Description
5 – Empirical Analysis
Real Exchange Rate Observation
Unit Root Test
Cointegration Test
Multivariate Cointegration Test
Bivariate Cointegration Test
Panel Unit Root Test
Analysis of the US Top 10 trading countries’ Test Result
6 – Conclusion
References
