International Parity Conditions in a Cointegration Framework

We have argued that the development of cointegration analysis has been a factor leading to the resurgence of interest in international parity conditions. It may, therefore, be appropriate to present an introduction to the cointegration literature, with particular emphasis on the techniques that have been used to test the hypotheses underlying these conditions. This chapter deals with the basics of cointegration analysis, while Chapters 7 and 8 deal with the techniques of testing for unit root and cointegration respectively.