This paper is based on a recent paper by Juselius and MacDonald (2000,
2003) and two `Journal of Econometrics' article s by Juselius (1995) and
Johansen and Juselius (1992). The basic feature in all these articles is
that the joint modelling of international parity conditions, namely ppp
and uip, produces stationary relations showing an important interaction
between the goods and the capital markets. We replaced the consumer
price index (CPI) considered by Juselius and MacDonald with the producer
price index (PPI) to check whether the international parity
relationships still cointegrate. To our surprise we outstandingly
produced similar results to those by Juselius and MacDonald, suggesting
that the cointegration relationships in the international parity
conditions hold also if we use different measures of prices. What is
striking in our results is that even if there is no direct cointegration
relation between CPI and PPI both in Germany and USA, the cointegration
relation found between ppp and uip still holds notwithstanding of how
ppp is measured.
JEL Classifications: E31, E43, F31, F32.
Keywords: ppp, uip, Fisher parity.