In this chapter, the necessary condition and the necessary and sufficient condition for purchasing power parity (PPP) are sequentially tested for fourteen bilateral exchange rates. This test is undertaken in the framework of subset vector error correction modelling (VECM) with zero coefficients....

An effective and efficient search algorithm has been developed to select from an I(1) system zero-non-zero patterned cointegrating and loading vectors in a subset VECM, where the long term impact matrix contains zero entries. The Finnish money-output model presented by Johansen and Juselius...

Vector error-correction models (VECM) are increasingly being used to capture dynamic relationships between financial variables. Estimation and interpretation of such models can be enhanced if zero restrictions are allowed in the coefficient matrices. Specifically, in tests of indirect causality...