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Does the PPP condition hold for oil-exporting countries? A quantile cointegration regression approach

Does the PPP condition hold for oil-exporting countries? A quantile cointegration regression approach
Does the PPP condition hold for oil-exporting countries? A quantile cointegration regression approach

This paper examines the legitimacy of the Purchasing Power Parity condition applied to the quantile process for 12 oil-exporting countries: Algeria, Angola, Canada, Colombia, Indonesia, Iran, Kazakhstan, Kuwait, Mexico, Nigeria, Norway, and Russia. The application of quantile unit root inference methods to test the specification of the PPP condition in the quantile process yields limited support to the equilibrium condition. However, the application of quantile cointegration methods that estimate the equilibrium relationship between national prices and the nominal exchange rate is much more supportive of a generalized PPP condition that varies across countries and quantiles. Our empirical findings suggest that the distribution of the nominal exchange rate reflects a nonlinear equilibrium relationship between national prices that varies widely between the central and tail quantiles and is country-specific.

oil-exporting countries, purchasing power parity, quantile cointegration, quantile unit root test
1076-9307
79-93
Lyon, Matthew
a12193fd-b7bd-405d-9d14-cec2d0f9031d
Olmo, Jose
706f68c8-f991-4959-8245-6657a591056e
Lyon, Matthew
a12193fd-b7bd-405d-9d14-cec2d0f9031d
Olmo, Jose
706f68c8-f991-4959-8245-6657a591056e

Lyon, Matthew and Olmo, Jose (2018) Does the PPP condition hold for oil-exporting countries? A quantile cointegration regression approach. International Journal of Finance and Economics, 23 (2), 79-93. (doi:10.1002/ijfe.1603).

Record type: Article

Abstract

This paper examines the legitimacy of the Purchasing Power Parity condition applied to the quantile process for 12 oil-exporting countries: Algeria, Angola, Canada, Colombia, Indonesia, Iran, Kazakhstan, Kuwait, Mexico, Nigeria, Norway, and Russia. The application of quantile unit root inference methods to test the specification of the PPP condition in the quantile process yields limited support to the equilibrium condition. However, the application of quantile cointegration methods that estimate the equilibrium relationship between national prices and the nominal exchange rate is much more supportive of a generalized PPP condition that varies across countries and quantiles. Our empirical findings suggest that the distribution of the nominal exchange rate reflects a nonlinear equilibrium relationship between national prices that varies widely between the central and tail quantiles and is country-specific.

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Lyon Olmov6 - Accepted Manuscript
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Accepted/In Press date: 12 December 2017
e-pub ahead of print date: 25 January 2018
Published date: 1 April 2018
Keywords: oil-exporting countries, purchasing power parity, quantile cointegration, quantile unit root test

Identifiers

Local EPrints ID: 419701
URI: http://eprints.soton.ac.uk/id/eprint/419701
ISSN: 1076-9307
PURE UUID: 4cac0639-3de9-4275-b69f-27027871486b
ORCID for Jose Olmo: ORCID iD orcid.org/0000-0002-0437-7812

Catalogue record

Date deposited: 19 Apr 2018 16:30
Last modified: 27 Apr 2022 05:19

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Contributors

Author: Matthew Lyon
Author: Jose Olmo ORCID iD

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