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Further evidence on purchasing power parity and country characteristics

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  • Wu, Jyh-Lin
  • Cheng, Su-Yin
  • Hou, Han

Abstract

Using data from 76 countries, this paper investigates the relationship between country characteristics and the validity of purchasing power parity (PPP). Several interesting results are obtained based on dollar-based exchange rates. First, PPP holds for Africa and Latin America. Further, PPP tends to be supported for countries with high or moderate openness, low growth rates, high inflation rates and high nominal exchange rate volatility, respectively. Second, a single country characteristic seems inadequate to account for the validity of PPP. Third, PPP is supported if countries satisfy at least two characteristics of supporting PPP simultaneously. Finally, the main results of the paper are robust when the numeraire currency changes from the US dollar to Japanese yen.

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  • Wu, Jyh-Lin & Cheng, Su-Yin & Hou, Han, 2011. "Further evidence on purchasing power parity and country characteristics," International Review of Economics & Finance, Elsevier, vol. 20(2), pages 257-266, April.
    • Handle: RePEc:eee:reveco:v:20:y:2011:i:2:p:257-266
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    6. Offermanns, Christian J., 2014. "On the degree of homogeneity in dynamic heterogeneous panel data models," Discussion Papers 2014/25, Free University Berlin, School of Business & Economics.

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