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Purchasing Power Parity and the Real Exchange Rate

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  • Taylor, Mark
  • Sarno, Lucio

Abstract

We assess the progress made by the profession in understanding real exchange rate behaviour, through a selective and critical but nonetheless expository review of the literature. Our reading of the literature leads us to the main conclusions that purchasing power parity might be viewed as a valid long-run international parity condition when applied to bilateral exchange rates among major industrialized countries and that also means reversion in real exchange rates displays significant non-linearities. Further work investigating the effects of real shocks on the long-run equilibrium level also seems warranted.

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  • Taylor, Mark & Sarno, Lucio, 2001. "Purchasing Power Parity and the Real Exchange Rate," CEPR Discussion Papers 2913, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2913
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    15. César Calderón & Roberto Duncan, 2003. "Purchasing power parity in an emerging market economy: a long- span study for Chile," Estudios de Economia, University of Chile, Department of Economics, vol. 30(1 Year 20), pages 103-132, June.
    16. Rebecca L Driver & Peter F Westaway, 2005. "Concepts of equilibrium exchange rates," Bank of England working papers 248, Bank of England.
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    More about this item

    Keywords

    Foreign exchange; Purchasing power parity; Real exchange rate;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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