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Theory and Tests of Generalized Purchasing-Power Parity: Common Trends and Real Exchange Rates in the Pacific Rim


  • Enders, Walter
  • Hurn, Stan


The paper develops the theory of generalized purchasing-power parity (G-PPP) to explain the "stylized facts" of real exchange-rate behavior. The fundamental economic variables determining real exchange rates are nonstationary; thus real rates are nonstationary. If the fundamentals are sufficiently integrated, as in a currency area, the real rates will share common trends. The theory is tested using the Pacific Rim nations. It is shown the G-PPP holds between each of the Pacific Rim nations and the large industrialized countries. There is only mild evidence that G-PPP holds among the Pacific Rim nations as a group. Copyright 1994 by Blackwell Publishing Ltd.

Suggested Citation

  • Enders, Walter & Hurn, Stan, 1994. "Theory and Tests of Generalized Purchasing-Power Parity: Common Trends and Real Exchange Rates in the Pacific Rim," Review of International Economics, Wiley Blackwell, vol. 2(2), pages 179-190, June.
  • Handle: RePEc:bla:reviec:v:2:y:1994:i:2:p:179-90

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    References listed on IDEAS

    1. Kala Krishna & Kathleen Hogan & Phillip Swagel, 1989. "The Non-Optimality of Optimal Trade Policy: The U.S. Automobile Indust ry Revisited, 1979-1985," NBER Working Papers 3118, National Bureau of Economic Research, Inc.
    2. Trela, I. & Whalley, J., 1988. "Do Developing Countries Lose From The Mfa?," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers 8804c, University of Western Ontario, The Centre for the Study of International Economic Relations.
    3. Kala Krishna, 1988. "The Case of the Vanishing Revenues: Auction Quotas With Oligopoly," NBER Working Papers 2723, National Bureau of Economic Research, Inc.
    4. Richard E. Baldwin & Paul Krugman, 1986. "Market Access and International Competition: A Simulation Study of 16K Random Access Memories," NBER Working Papers 1936, National Bureau of Economic Research, Inc.
    5. Carlos Alfredo Rodriguez, 1979. "The Quality of Imports and the Differential Welfare Effects of Tariffs, Quotas, and Quality Controls as Protective Devices," Canadian Journal of Economics, Canadian Economics Association, vol. 12(3), pages 439-449, August.
    6. Kala Krishna, 1985. "Tariffs vs. Quotas with Endogenous Quality," NBER Working Papers 1535, National Bureau of Economic Research, Inc.
    7. Hamilton, Carl, 1986. "An Assessment of Voluntary Restraints on Hong Kong Exports to Europe and the USA," Economica, London School of Economics and Political Science, vol. 53(211), pages 339-350, August.
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