Advanced Search
MyIDEAS: Login to save this paper or follow this series

A Century of Purchasing-Power Parity

Contents:

Author Info

  • Alan M. Taylor

Abstract

This paper investigates purchasing-power parity (PPP) since the late nineteenth century. I collected data for a group of twenty countries over one hundred years, a larger historical panel of annual data than has ever been studied before. The evidence for long-run PPP is favorable using recent multivariate and univariate tests of higher power. Residual variance analysis shows that episodes of floating exchange rates have generally been associated with larger deviations from PPP, as expected; this result is not attributable to significantly greater persistence (longer halflives) of deviations in such regimes, but is due to the larger shocks to the real-exchange rate process in such episodes. In the course of the twentieth century there was relatively little change in the capacity of international market integration to smooth out real exchange rate shocks. Instead, changes in the size of shocks depended on the political economy of monetary and exchange-rate regime choice under the constraints imposed by the trilemma.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w8012.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8012.

as in new window
Length:
Date of creation: Nov 2000
Date of revision:
Publication status: published as Taylor, Alan M. "A Century Of Purchasing-Power Parity," Review of Economics and Statistics, 2002, v84(1,Feb), 139-150.
Handle: RePEc:nbr:nberwo:8012

Note: DAE IFM ITI
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Barry Eichengreen., 1987. "Real Exchange Rate Behavior under Alternative International Monetary Regimes: Interwar Evidence," Economics Working Papers, University of California at Berkeley 8755, University of California at Berkeley.
  2. Abuaf, Niso & Jorion, Philippe, 1990. " Purchasing Power Parity in the Long Run," Journal of Finance, American Finance Association, American Finance Association, vol. 45(1), pages 157-74, March.
  3. Francis X. Diebold & Steven Husted & Mark Rush, 1990. "Real exchange rates under the gold standard," Discussion Paper / Institute for Empirical Macroeconomics, Federal Reserve Bank of Minneapolis 32, Federal Reserve Bank of Minneapolis.
  4. Susanto Basu & Alan M. Taylor, 1999. "Business Cycles in International Historical Perspective," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 13(2), pages 45-68, Spring.
  5. anonymous, 1995. "Economist examines financial derivatives risk," Financial Update, Federal Reserve Bank of Atlanta, Federal Reserve Bank of Atlanta, issue Jan, pages 4.
  6. Engel, Charles & Rogers, John H, 1996. "How Wide Is the Border?," American Economic Review, American Economic Association, American Economic Association, vol. 86(5), pages 1112-25, December.
  7. Jeffrey A. Frankel & Andrew K. Rose, 1995. "A Panel Project on Purchasing Power Parity: Mean Reversion Within and Between Countries," NBER Working Papers 5006, National Bureau of Economic Research, Inc.
  8. Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc.
  9. G. M. Grossman & K. Rogoff (ed.), 1995. "Handbook of International Economics," Handbook of International Economics, Elsevier, Elsevier, edition 1, volume 3, number 3, 00.
  10. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 72, pages 584.
  11. Glen, Jack D., 1992. "Real exchange rates in the short, medium, and long run," Journal of International Economics, Elsevier, Elsevier, vol. 33(1-2), pages 147-166, August.
  12. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, Econometric Society, vol. 59(6), pages 1551-80, November.
  13. Kim, Yoonbai, 1990. "Purchasing power parity : Another look at the long-run data," Economics Letters, Elsevier, Elsevier, vol. 32(4), pages 339-344, April.
  14. Jacob Frenkel & Chairman, 1995. "Solutions for developed economies (general discussion)," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 295-306.
  15. Charles Engel & John H. Rogers, 1995. "Regional Patterns in the Law of One Price: The Roles of Geography vs. Currencies," NBER Working Papers 5395, National Bureau of Economic Research, Inc.
  16. anonymous, 1995. "Does the bouncing ball lead to economic growth?," Regional Update, Federal Reserve Bank of Atlanta, Federal Reserve Bank of Atlanta, issue Jul, pages 1-2, 4-6.
  17. Papell, David H., 1997. "Searching for stationarity: Purchasing power parity under the current float," Journal of International Economics, Elsevier, Elsevier, vol. 43(3-4), pages 313-332, November.
  18. Eric Rasmusen & ., 1995. "``The Economics of Agency Law and Contract Formation''," Law and Economics, EconWPA 9506002, EconWPA.
  19. anonymous, 1995. "Georgia economy strong even without Olympics," Regional Update, Federal Reserve Bank of Atlanta, Federal Reserve Bank of Atlanta, issue Oct, pages 11-13.
  20. Ken Froot & Kenneth Rogoff, . "Perspectives on PPP and Long-Run Real Exchange Rates," Working Paper 32027, Harvard University OpenScholar.
  21. Taylor, Mark P. & Sarno, Lucio, 1998. "The behavior of real exchange rates during the post-Bretton Woods period," Journal of International Economics, Elsevier, Elsevier, vol. 46(2), pages 281-312, December.
  22. Taylor, Alan M, 2001. "Potential Pitfalls for the Purchasing-Power-Parity Puzzle? Sampling and Specification Biases in Mean-Reversion Tests of the Law of One Price," Econometrica, Econometric Society, Econometric Society, vol. 69(2), pages 473-98, March.
  23. Jeffrey A. Frankel, 1985. "International Capital Mobility and Crowding Out in the U.S. Economy: Imperfect Integration of Financial Markets or of Goods Markets?," NBER Working Papers 1773, National Bureau of Economic Research, Inc.
  24. Laffont, Jean-Jacques & Ossard, Hervé & Vuong, Quang, 1991. "Econometrics of First-Price Auctions," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 7, Institut d'Économie Industrielle (IDEI), Toulouse.
  25. Serena Ng & Pierre Perron, 2002. "PPP May not Hold Afterall: A Further Investigation," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 83, China Economics and Management Academy, Central University of Finance and Economics.
  26. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  27. Hali J. Edison & Joseph E. Gagnon & William R. Melick, 1994. "Understanding the empirical literature on purchasing power parity: the post-Bretton Woods era," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 465, Board of Governors of the Federal Reserve System (U.S.).
  28. Lothian, James R., 1990. "A century plus of Yen exchange rate behavior," Japan and the World Economy, Elsevier, Elsevier, vol. 2(1), pages 47-70, March.
  29. Matthew Higgins & Egon Zakrajsek, 2000. "Purchasing power parity: three stakes through the heart of the unit root null," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2000-22, Board of Governors of the Federal Reserve System (U.S.).
  30. anonymous, 1995. "New Orleans and Louisiana: a tale of two economies," Regional Update, Federal Reserve Bank of Atlanta, Federal Reserve Bank of Atlanta, issue Oct, pages 14-16.
  31. Mark P. Taylor, 1995. "The Economics of Exchange Rates," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 33(1), pages 13-47, March.
  32. Maurice Obstfeld., 1993. "Model Trending Real Exchange Rates," Center for International and Development Economics Research (CIDER) Working Papers, University of California at Berkeley C93-011, University of California at Berkeley.
  33. Cheung, Yin-Wong & Lai, Kon S., 2000. "On the purchasing power parity puzzle," Journal of International Economics, Elsevier, Elsevier, vol. 52(2), pages 321-330, December.
  34. Cheung, Yin-Wong & Lai, Kon S., 1998. "Parity reversion in real exchange rates during the post-Bretton Woods period," Journal of International Money and Finance, Elsevier, Elsevier, vol. 17(4), pages 597-614, August.
  35. David R. Johnson, 1990. "Co-integration, Error Correction, and Purchasing Power Parity between Canada and the United States," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 23(4), pages 839-55, November.
  36. Taylor, Mark P. & McMahon, Patrick C., 1988. "Long-run purchasing power parity in the 1920s," European Economic Review, Elsevier, Elsevier, vol. 32(1), pages 179-197, January.
  37. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262150476, December.
  38. Engel, C., 1996. "Long-Run PPP May Not Hold After All," Working Papers, University of Washington, Department of Economics 96-05, University of Washington, Department of Economics.
  39. Anonymous, 1995. "March 1995 economic forecasts," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, Reserve Bank of New Zealand, vol. 58, March.
  40. Kiseok Lee & Shawn Ni, 1995. "Inflation uncertainty and real economic activities," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 2(11), pages 460-462.
  41. Kim, Yoonbai, 1990. "Purchasing Power Parity in the Long Run: A Cointegration Approach," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 22(4), pages 491-503, November.
  42. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, Econometric Society, vol. 55(2), pages 251-76, March.
  43. Lothian, James R & Taylor, Mark P, 1996. "Real Exchange Rate Behavior: The Recent Float from the Perspective of the Past Two Centuries," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 104(3), pages 488-509, June.
  44. Donald N. McCloskey & J. Richard Zecher, 1984. "The Success of Purchasing-Power Parity: Historical Evidence and Its Implications for Macroeconomics," NBER Chapters, in: A Retrospective on the Classical Gold Standard, 1821-1931, pages 121-172 National Bureau of Economic Research, Inc.
  45. Anonymous, 1995. "Contents of Agricultural Economics, Vol. 12," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 12(3), September.
  46. O'Connell, Paul G. J., 1998. "The overvaluation of purchasing power parity," Journal of International Economics, Elsevier, Elsevier, vol. 44(1), pages 1-19, February.
  47. Parsley, David C & Popper, Helen A, 2001. "Official Exchange Rate Arrangements and Real Exchange Rate Behavior," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 33(4), pages 976-93, November.
  48. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 12(2-3), pages 231-254.
  49. Alan M. Taylor, 1996. "International Capital Mobility in History: Purchasing-Power Parity in the Long Run," NBER Working Papers 5742, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:8012. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.