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Weak-form and strong-form purchasing power parity between the US and Mexico: A panel cointegration investigation

Author

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  • Robertson, Raymond
  • Kumar, Anil
  • Dutkowsky, Donald H.
Abstract
This study examines the long-run relationship between US and Mexican prices. We use panel cointegration techniques that allow for heterogeneous relationships across goods to examine the existence of weak-form and strong-form Purchasing Power Parity (PPP) between the US and Mexico. We construct and work with a panel of highly disaggregated data, matched prices of individual products sold in each country. Our findings provide overwhelming support for weak-form PPP, but less support for strong-form PPP. Strong-form PPP, though, emerges among actively-traded goods. In contrast, non-traded goods exhibit amplified reaction to price changes in Mexico relative to those from the US.

Suggested Citation

  • Robertson, Raymond & Kumar, Anil & Dutkowsky, Donald H., 2014. "Weak-form and strong-form purchasing power parity between the US and Mexico: A panel cointegration investigation," Journal of Macroeconomics, Elsevier, vol. 42(C), pages 241-262.
    • Handle: RePEc:eee:jmacro:v:42:y:2014:i:c:p:241-262
    DOI: 10.1016/j.jmacro.2014.08.005
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    2. Stewart, Chris, 2023. "The autoregressive distributed lag bounds test generalised to consider a long-run levels relationship when all levels variables are 𝑰(𝟎)," Economics Discussion Papers 2023-2, School of Economics, Kingston University London.
    3. Niri Martha Choji* & Siok Kun Sek, 2018. "Investigating the PPP Theory and Long-run Estimates for Five Asian Countries," The Journal of Social Sciences Research, Academic Research Publishing Group, pages 237-242:2.
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    6. Hendriks, Johannes Jurgens & Bonga-Bonga, Lumengo, 2022. "Testing for the purchasing power parity (PPP) hypothesis between South Africa and its main trading partners: application of the quantile approach," MPRA Paper 112915, University Library of Munich, Germany.

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    More about this item

    Keywords

    Purchasing Power Parity (PPP); Weak-form PPP; Strong-form PPP; Cointegration; Mexico;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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