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Purchasing power parity over a century

Author

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  • Yevheniya Hyrina
  • Apostolos Serletis

Abstract

Purpose - The purpose of this paper is to revisit the evidence for purchasing power parity (PPP) using long, low‐frequency data (over 100 years) for 23 organization for economic co‐operation and development (OECD) countries against each of four different base currencies – the Deutsch mark, the Japanese yen, the British pound, and the US dollar. Design/methodology/approach - The paper uses standard unit root tests and level and trend stationarity tests, and also investigates the robustness of the results to alternative testing methodologies from statistical physics, such as Lo's modified rescaled range statistic and the Hurst exponent. Findings - The results indicate that the theory of PPP does not hold. Originality/value - Motivated by the mixed results from previous research on the validity of the theory of PPP, the robustness of standard unit root and stationarity tests to alternative testing methodologies are investigated. In particular, the paper uses two tests from statistical physics – Lo's modifiedR/Sstatistic and the Hurst exponent.

Suggested Citation

  • Yevheniya Hyrina & Apostolos Serletis, 2010. "Purchasing power parity over a century," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 37(1), pages 117-144, January.
    • Handle: RePEc:eme:jespps:v:37:y:2010:i:1:p:117-144
    DOI: 10.1108/01443581011012289
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    Citations

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    Cited by:

    1. Hwa-Taek Lee & Gawon Yoon, 2013. "Does purchasing power parity hold sometimes? Regime switching in real exchange rates," Applied Economics, Taylor & Francis Journals, vol. 45(16), pages 2279-2294, June.
    2. Siphat Lim, 2021. "Testing Purchasing Power Parity in Cambodia: Time-Varying Trade Weights in Constructing Real Effective Exchange Rate," International Journal of Economics and Financial Issues, Econjournals, vol. 11(3), pages 146-153.
    3. Si Mohammed, Kamel & Chérif touil, Noreddine & Maliki, Samir, 2015. "An Empirical Test of Purchasing Power Parity of the Algerian Exchange Rate: Evidence from Panel Dynamic," MPRA Paper 75285, University Library of Munich, Germany.
    4. Simon Bell & Stephen Morse, 2018. "Sustainability Indicators Past and Present: What Next?," Sustainability, MDPI, vol. 10(5), pages 1-15, May.
    5. Kutan, Ali M. & Zhou, Su, 2015. "PPP may hold better than you think: Smooth breaks and non-linear mean reversion in real effective exchange rates," Economic Systems, Elsevier, vol. 39(2), pages 358-366.
    6. Ahmad Zubaidi Baharumshah & Siew-Voon Soon, 2012. "Mean reversion in bilateral real exchange rates: evidence from the Malaysian ringgit," Applied Economics, Taylor & Francis Journals, vol. 44(22), pages 2921-2933, August.
    7. Akarim, Yasemin Deniz & Sevim, Serafettin, 2013. "The impact of mean reversion model on portfolio investment strategies: Empirical evidence from emerging markets," Economic Modelling, Elsevier, vol. 31(C), pages 453-459.

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