Do purchasing power parity and uncovered interest rate parity hold in the long run? An example of likelihood inference in a multivariate time-series model

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Abstract

The long-run foreign transmission effects are analyzed in a multivariate time-series model of Danish and German prices, exchange rates and interest rates. The analysis of the likelihood function reveals that the vector process is I(2), but that a linear transformation of the prices and the nomical exchange rate removes the I(2) trend from the data. A structural representation of the full cointegration space is found to facilitate the understanding of the interaction between the goods and the capital market and hence the mechanisms behind the inflationary effects transmitted from abroad
Original languageEnglish
JournalJournal of Econometrics
Volume69
Issue number1
Pages (from-to)211-240
ISSN0304-4076
DOIs
Publication statusPublished - 1995

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