Long-run PPP in a system context: No favorable evidence after all for the U.S., Germany, and Japan

In a cointegration analysis of PPP in five-variable system for Germany, Japan, and the U.S., Sideris [Sideris, D., 2006. Testing for long-run PPP in a system context: evidence for the U.S., Germany and Japan. Journal of International Financial Markets, Institutions and Money 16, 143-154] reports three cointegration vectors and concludes that they are consistent with some form of PPP for all three exchange rates. The present paper reconsiders Sideris's three-country analysis with special attention to the specification of deterministic terms in the cointegration testing. In addition, the passage of time since the Sideris paper allows the data set to be extended. The present paper also applies the Johansen approach and longer data set to traditional two-country models for the same exchange rates. In no case is any evidence in favor of PPP found.