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Title: |
Long-Run Purchasing Power Parity and
Structural Change: The Offical and Parallel Foreign Exchange Markets for
Dollars in Greece |
| Author: |
Kouretas,
Georgios P.; Zarangas, Leonidas P. |
| Author
Affiliation: |
U Crete; Centre
of Planning & Econ Research, Athens and U Crete |
| Source: |
International Economic Journal, Autumn 2001, v. 15, no. 3, pp. 109-128 |
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Publication Date: |
Autumn 2001 |
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Abstract: |
This paper examines the Purchasing Power
Parity theory from a long-run perspective in the presence of a parallel
or "black" market for US dollars in Greece using monthly data for the
recent float. Johansen's FIML multivariate cointegration technique is
applied. Recent developments associated with this procedure are
considered. First, a formal test developed by Paruolo (1996) for the
presence of I(2) and I(1) components in a multivariate context is
applied along with the estimation of the roots of the companion matrix
for the correct determination of the cointegration rank. Second, given
that two significant cointegration vectors were found, structural
restrictions identifying the long-run relations of interest are
specified as proposed by Johansen and Juselius (1994) and Johansen
(1995). Thus, the joint structure of PPP and long-run informational
market efficiency could not be rejected. Furthermore, estimation of the
error correction terms shows that the black market rate adjusts to
eliminate any deviation from long-run PPP. Finally, stability tests
proposed by Hansen and Johansen (1993) are applied and it is shown that
the dimension of the cointegration space is sample dependent while the
estimated coefficients do not exhibit instability in recursive
estimations. |
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