This paper focuses on a study of purchasing power parity. There have been arguments for whether a long run PPP holds or not. First, this paper empirically shows that a long run PPP is actually held between Korea and US. Second, we attempt to detect a break point of a long-run PPP since a structural change is highly suspected to exist in a long-run equilibrium since the disastrous financial crisis damaged the Asian economy around 1997. In fact, we can detect a structural change on the basis of the methodology of Seo (1998). After estimation, a break point is found in a long run relationship between nominal exchange rate and price levels of both countries. Thus, our conclusion should be that the financial crisis affected a long run PPP.
Abstract
Ⅰ. Introduction
Ⅱ. A Brief Overview and Literature
Ⅲ. Methodologies and Empirical Studies
Ⅱ. Conclusion
References
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