Home bias and deviations from purchasing power parity
Empirical analysis has produced mixed results in testing for PPP. This note presents a simple model linking home bias towards home-produced tradable goods with deviations from absolute PPP. We show that this bias constitutes a significant determinant of PPP deviations.
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- Mark Taylor, 2006. "Real exchange rates and Purchasing Power Parity: mean-reversion in economic thought," Applied Financial Economics, Taylor & Francis Journals, vol. 16(1-2), pages 1-17.
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