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Full-Text Articles in Physical Sciences and Mathematics
Testing For Absolute Purchaing Power Parity, Douglas G. Steigerwald, Collin Crownover, John Pippenger
Testing For Absolute Purchaing Power Parity, Douglas G. Steigerwald, Collin Crownover, John Pippenger
Douglas G. Steigerwald
Purchasing power parity (PPP) is an equilibrium condition equating the nominal exchange rate between two countries with the relative price of an identical bundle of goods in each country. Previous time-series researchers use price indicies to study PPP, so they study relative PPP. We use new data that measures price levels, so we test absolute PPP. Price levels provide a test of absolute PPP because, unlike price indicies, do not contain a base period in which the nominal exchange rate equals the price ratio by construction. We find support for absolute PPP.
Purchasing Power Parity, Unit Roots And Dynamic Structure, Douglas G. Steigerwald
Purchasing Power Parity, Unit Roots And Dynamic Structure, Douglas G. Steigerwald
Douglas G. Steigerwald
Recent studies of puchasing power parity (PPP) account for the possible presence of unit roots in nominal exchange rates and relative price indicies by applying standard unit-root tests to real exchange rates, which are ratios of nominal exchange rates and relative price indicies. These studies occasionally find evidence of PPP but, as a whole, the evidence is not definitive. Standard unit-root tests impose a restrictive dynamic structure between nominal exchange rates and relative price indicies. I specify and estimate a generalized dynamic structure. I reject the dynamic restrictions implicit in standard unit-root tests of PPP, and find stronger evidence of …