Parity Tests Research Articles

A Test of Mental Health Parity

A Test of Mental Health Parity

PPP and structural breaks. The peseta–sterling rate, 50 years of a floating regime

This paper aims to illustrate the relevance of considering structural breaks in Purchasing Power Parity (PPP) tests. To that end, we examine the peseta–sterling real exchange rate between 1870 and 1935. This is an interesting series, given that the peseta was not part of the gold standard yet maintained a floating rate regime during most of that period. When breaks are not considered, it is impossible to reject the existence of a unit root in the series. However, if two breaks are allowed, with these capturing the particular events that occurred in the monetary history of these currencies at the beginning and end of the period, then the null hypothesis can be rejected and PPP emerges as a good approximation of the behavior of the peseta–sterling exchange rate, even if that rate was predominantly a floating regime.

Free to Flow? New Results on Capital Mobility Amongst the Developed Countries

This paper evaluates the evidence for uncovered and real interest parity at the long horizons for the non-G7 economies. We examine the behavior of exchange rates and interest differentials for bonds with 5-year maturity. Although there are substantial differences in the results among countries, the majority of the countries' interest differentials have correctly signed coefficients, which contrasts strongly with previous studies and provide empirical support for market integration. Similarly, test of real interest parity indicate a higher degree of equalization. In summary, we find greater evidence of capital and goods market integration than has been found using short term data, indicating that capital market integration has proceeded further even among the smaller developed economies.

Purchasing power parity, price indices, and exchange rate forcasts

This paper addresses the issue of using aggregate price indices for purchasing power parity (PPP) tests and the fitness of PPP as a model for exchange rate forecasting. Compared with consumer price index (CPI) and wholesale price index (WPI), the price index of traded-goods (TPI) appears to be a more appropriate price index for both PPP tests and exchange rate forecasting. It performs better in the tests and provides superior exchange rate forecasts, both within- and out-of-sample. While the half-life of the estimated deviations from PPP is about two years for the CPI and WPI-based real exchange rates, it is only one year for the TPI-based real exchange rates.

Purchasing Power Parity Tests in Cointegrated Panels

This paper employs recently developed techniques for testing hypotheses in cointegrated panels to test the strong version of purchasing power parity for a panel of post Bretton Woods data. We compare results using fully modified and dynamic OLS approaches, and strongly reject the hypothesis. We also introduce a new between-dimension dynamic OLS estimator and find that the between-dimension FMOLS and DOLS estimates of the long-run deviation from purchasing power parity are larger than the corresponding within-dimension estimates. Finally, we attempt to reconcile these rejections with the mixed findings that have been reported in panel unit root studies.

Fault Detection and Isolation of Systems with Slowly Time-varying Faults using the Optimal Parity Test

ABSTRACT To improve the reliability in detecting and isolating actuator and sensor faults, a fault detection and isolation (FDI) technique based on the optimal parity test is derived in this paper. Fault isolation is achieved by designing optimal parity vectors such that they are sensitive only to specific actuator and sensor faults. The definition of the generalized input fault vector is presented, and the geometric invariability of collinear vectors is also discussed. An simulation examples is presented to illustrate the performance of the proposed FDI technique.

A test of long-run purchasing power parity

There is a continuing debate whether purchasing power parity holds as a long-run equilibrium relationship. This note applies an exact small-sample, pointwise most powerful invariant unit root test to annual, long-horizon real exchange rates. This test finds clear and consistent evidence in favor of the true purchasing power parity relationship.

An Adjusted, Asymmetric Two-Sample t Test

This article presents an asymmetric version of the two-sample t test which is adjusted for distribution skewness and that is sensitive to alternatives where one of the population variances may have increased. The need for such a statistic has arisen in testing for parity of service.

Box Spread and Put-Call Parity Tests for the S&P 500 Index LEAPS Market

“Option pricing models are based on arbitrage, but setting up a delta-neutral position and rebalancing it continuously over an optionOs lifetime is often a difficult and costly trading strategy. Pricing violations, therefore, may not indicate significant market inefficiency, particularly given uncertainty over the volatility parameter. By contrast, put-call parity is an option price relationship that, if violated, generates a straightforward arbitrage trade that does not require rebalancing or information about volatility. Only an inefficient market would allow substantial violations of put-call parity. A box spread uses two calls and two puts, but no position in the underlying asset, to produce a similar position to that used for put-call parity arbitrage. The box spread arbitrage also is easily set up with minimal execution risk. Bharadwaj and Wiggins consider whether the market for LEAPS written on the S&P 500 index is efficient enough to preclude violations of put-call parity and the box spread pricing relationship. They find that while LEAPS puts are overpriced relative to calls about 80% of the time, the discrepancy is seldom enough to produce a reliable arbitrage profit after transaction costs. Further exploration, including trying to assess the impact of dividend uncertainty and considering a trading strategy using futures in place of the underlying cash index portfolio, does not resolve the put mispricing issue.”

Uncovered interest parity and the peso problem: the Brazilian case

The uncovered interest parity (UIP) test for Brazil is presented from the standpoint of rational expectations hypothesis. The period is January 1984 to October 1998. The econometric tests validate the UIP just for the sub-period January 1990 to June 1994. The result suggests fail with the UIP in the Real Plan, validating the theoretical point proposed by Krasker.

Generalized purchasing power parity and the case of the European Union as a successful currency area

This article uses multicountry purchasing power parity (PPP) tests to study the success of the European monetary system (EMS) in creating a successful currency area for a stable European monetary union. If the EMS has sufficiently integrated the fundamentals within the European Union, then real exchange rates between member countries will share a common stationary trend when denominated by a common outside currency. Previous research using two-country PPP tests have been inadequate in explaining the nonstationary nature of real exchange rates between the EMS countries and nonmember countries. The use of generalized PPP tests can show that even though individual exchange rates within the EMS may appear to be nonstationary with respect to outside countries, some of them will combine to form a currency union with a stable stationary trend.

Relational queries over interpreted structures

We rework parts of the classical relational theory when the underlying domain is a structure with some interpreted operations that can be used in queries. We identify parts of the classical theory that go through 'as before' when interpreted structure is present, parts that go through only for classes of nicely behaved structures, and parts that only arise in the interpreted case. The first category include a number of results on language equivalence and expressive power characterizations for the active-domain semantics for a variety of logics. Under this semantics, quantifiers range over elements of a relational database. The main kind of results we prove here are generic collapse results: for generic queries, adding operations beyond order, does not give us extra power. The second category includes results on the natural semantics, under which quantifiers range over the entire interpreted structure. We prove, for a variety of structures, natural-active collapse results, showing that using unrestricted quantification does not give us any extra power. Moreover, for a variety of structures, including the real field, we give a set of algorithms for eliminating unbounded quantifications in favor of bounded ones. Furthermore, we extend these collapse results to a new class of higher-order logics that mix unbounded and bounded quantification. We give a set of normal forms for these logics, under special conditions on the interpreted structures. As a by-product, we obtain an elementary proof of the fact that parity test is not definable in the relational calculus with polynomial inequality constraints. We also give examples of structures with nice model-theoretic properties over which the natural-active collapse fails.

TIME‐VARYING ESTIMATES ON THE OPENNESS OF CAPITAL ACCOUNTS IN EAST ASIA AND MEXICO

HE Asian currency crisis of 1997 and its reverberations in financial markets of developing countries around the world have intensified the debate over regulating the movement of capital, as capital flows to developing countries have grown rapidly since the early 1990s. One main feature of recent capital flows to developing countries is that private (bond and equity) flows, as opposed to official flows, have become a crucial source for financing large current account imbalances. The evolution and magnitude of capital movements have presented both opportunities and challenges to the developing countries. The degree of capital mobility has typically been assessed by the extent to which expected returns are equalized between domestic and foreign assets of the same type. The equalization of returns can be measured by simple interest arbitrage which typically focuses on the short-run relationship between capital flows and interest differentials. Capital mobility is defined as the absence of barriers to the movement of short-term capital across national boundaries. We can examine covered interest differentials for only a subset of countries with relatively well-developed forward markets, and many papers have looked at the mobility of financial capital for industrial countries. 1 Unfortunately, for a majority of countries that are liberalizing or contemplating liberalization, forward markets are either extremely thin or nonexistent, rendering covered interest parity tests irrelevant and making it difficult to judge the economic impact of capital account liberalization. Therefore, tests of uncovered interest parity conditions have been applied to examine the degree of capital mobility in most developing countries, although there is little evidence to show that uncovered interest parity conditions hold. This paper examines interest rate determination in two polar cases related to the degree of openness of the economy. If the economy under consideration is one that

Selecting the k largest elements with parity tests

In this paper we study the problem of finding the k largest elements of n distinct real numbers. We give a pure combinatorial argument to prove that n+(k−1) log n+ O(1) queries are necessary for any deterministic algorithm using parity tests only. We also present a randomized algorithm with error probability O(1/ n c ) using only O( log 2 n+k log n) parity tests, where c>1 is any fixed constant.

Pitfalls in panel tests of purchasing power parity

Pitfalls in Panel Tests of Purchasing Power Parity. —The results of panel unit root tests applied to real exchange rates as a test of long-run purchasing power parity (PPP) diverge much. In particular, due to misspecifications there is little evidence of the convergence of real exchange rates for the German mark. This paper provides evidence of this issue by analyzing large panels of real exchange rates vis-a-vis the German mark and the dollar. In particular, the impact of the base country and various aspects of the dynamic specifications are analyzed. Overall, the results provide strong evidence in favour of PPP as a long-run relationship.

Co-Movements in Long-Term Interest Rates and the Role of Ppp-Based Exchange Rate Expectations

This paper investigates international co-movement in bond yields by testing for uncovered interest parity (UIP). Existing work is supplemented by focusing on long instead of short-term interest rates and by employing exchange rate expectations derived from purchasing power parity (PPP) instead of actual outcomes. Among the major currencies during 1975-97, the paper does not find a further increase in co-movement beyond that associated with the wave of financial market liberalization in the early 1980s. Given the similarity between PPP-based UIP tests and those employing actual exchange rate outcomes, the value added of the former lies mainly with data availability.

Co-Movements in Long-Term Interest Rates and the Role of PPP-Based Exchange Rate Expectations

This paper investigates international co-movement in bond yields by testing for uncovered interest parity (UIP). Existing work is supplemented by focusing on long instead of short-term interest rates and by employing exchange rate expectations derived from purchasing power parity (PPP) instead of actual outcomes. Among the major currencies during 1975-97, the paper does not find a further increase in co-movement beyond that associated with the wave of financial market liberalization in the early 1980s. Given the similarity between PPP-based UIP tests and those employing actual exchange rate outcomes, the value added of the former lies mainly with data availability.

The Use of Covariance Functions and Random Regressions for Genetic Evaluation of Milk Production Based on Test Day Records

In the analysis of test day records for dairy cattle, covariance functions allow a continuous change of variances and covariances of test day yields on different lactation days. The equivalence between covariance functions as an infinite dimensional extension of multivariate models and random regression models is shown in this paper. A canonical transformation procedure is proposed for random regression models in large-scale genetic evaluations. Two methods were used to estimate covariance function coefficients for first parity test day yields of Holsteins: 1) a two-step procedure fitting covariance functions to matrices with estimated genetic and residual covariances between predetermined periods of lactation and 2) REML directly from data with a random regression model. The first method gave more reliable estimates, particularly for the periphery of the trajectory. The goodness of fit of a random regression model based on covariables describing the shape of the lactation curve was nearly the same as random regression on Legendre polynomials. In the latter model, two and three regression coefficients were sufficient to fit the covariance structure for additive genetic and permanent environment, respectively. The eigenfunction pattern revealed the possibility of selection for persistency. Covariance functions can be usefully implemented in large-scale test day models by means of random regressions.

Measuring Misalignment: PPP and East Asian Currencies in the 1990's

The concept of purchasing power parity (PPP) is used as an equilibrium exchange rate measure to evaluate whether eight East Asian currencies were overvalued on the eve of the 1997 currency crises: Hong Kong dollar, Indonesian rupiah, Korean won, Malaysian ringgit, Philippine peso. Singapore dollar, Taiwanese dollar and the Thai baht. Using both the Johansen and Horvath-Watson cointegration test procedures, the purchasing power parity tests are performed on bilateral (US$, yen) and multilateral exchange rates, using consumer price indices, producer price indices, and price indices of export goods. The second deflator yields the greatest evidence of stationarity. I find that the Hong Kong dollar, ringgit, Philippine peso, and baht were overvalued as of May 1997, according to the PPP criterion, while the won and the New Taiwan dollar were substantially undervalued. The implied deviations are compared against those obtained using simple trends in consumer price index deflated real rates; these trend based calculations typically suggest larger overvaluations than their producer price deflated counterparts.

Relational expressive power of constraint query languages

The expressive power of first-order query languages with several classes of equality and inequality constraints is studied in this paper. We settle the conjecture that recursive queries such as parity test and transitive closure cannot be expressed in the relational calculus augmented with polynomial inequality constraints over the reals. Furthermore, noting that relational queries exhibit several forms of genericity, we establish a number of collapse results of the following form: The class of generic Boolean queries expressible in the relational calculus augmented with a given class of constraints coincides with the class of queries expressible in the relational calculus (with or without an order relation). We prove such results for both the natural and active-domain semantics. As a consequence, the relational calculus augmented with polynomial inequalities expresses the same classes of generic Boolean queries under both the natural and active-domain semantics.In the course of proving these results for the active-domin semantics, we establish Ramsey-type theorems saying that any query involving certain kinds of constraints coincides with a constraint-free query on databases whose elements come from a certain infinite subset of the domain. To prove the collapse results for the natural semantics, we make use of techniques from nonstandard analysis and from the model theory of ordered structures.