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Exchange Rates, Prices and Money: A Long-Run Perspective

  • de Grauwe, Paul
  • Grimaldi, Marianna
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    In this paper we analyse the long-run proportionality and neutrality propositions between inflation and money growth and between exchange rate changes and money growth. Using a sample of 100 countries over a thirty-year period we find that the evidence in favour of these propositions is weak for the low inflation countries and very strong for the high inflation countries. We propose an explanation based on productivity shocks and transaction costs. Copyright @ 2001 by John Wiley & Sons, Ltd. All rights reserved.

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    Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

    Volume (Year): 6 (2001)
    Issue (Month): 4 (October)
    Pages: 289-313

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    Handle: RePEc:ijf:ijfiec:v:6:y:2001:i:4:p:289-313
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    1. Engel, C., 1996. "Long-Run PPP May Not Hold After All," Discussion Papers in Economics at the University of Washington 96-05, Department of Economics at the University of Washington.
    2. Glen, Jack D., 1992. "Real exchange rates in the short, medium, and long run," Journal of International Economics, Elsevier, vol. 33(1-2), pages 147-166, August.
    3. Kim, Yoonbai, 1990. "Purchasing power parity : Another look at the long-run data," Economics Letters, Elsevier, vol. 32(4), pages 339-344, April.
    4. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
    5. Frankel, Jeffrey A & Rose, Andrew K, 1995. "A Panel Project on Purchasing Power Parity: Mean Reversion Within and Between Countries," CEPR Discussion Papers 1128, C.E.P.R. Discussion Papers.
    6. Ardeni, Pier Giorgio & Lubian, Diego, 1991. "Is there trend reversion in purchasing power parity?," European Economic Review, Elsevier, vol. 35(5), pages 1035-1055, July.
    7. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
    8. William D. Nordhaus, 2000. "Alternative Methods for Measuring Productivity Growth," Cowles Foundation Discussion Papers 1282, Cowles Foundation for Research in Economics, Yale University.
    9. William D. Nordhaus, 2001. "New Data and Output Concepts for Understanding Productivity Trends," NBER Working Papers 8097, National Bureau of Economic Research, Inc.
    10. Abuaf, Niso & Jorion, Philippe, 1990. " Purchasing Power Parity in the Long Run," Journal of Finance, American Finance Association, vol. 45(1), pages 157-74, March.
    11. Cheung, Yin-Wong & Lai, Kon S., 2000. "On the purchasing power parity puzzle," Journal of International Economics, Elsevier, vol. 52(2), pages 321-330, December.
    12. Kim, Yoonbai, 1990. "Purchasing Power Parity in the Long Run: A Cointegration Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(4), pages 491-503, November.
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