Purchasing Power Parity: the Choice of Price Index
Looking closely at the PPP argument, it states that the currencies purchasing power should not change when comparing the same basket goods across countries, and these goods should all be tradable. Hence, if PPP is valid at all, it should be captured by the relative price indices that best fits these two features. We ran a horse race among six different price indices available from the IMF database to see which one would yield higher PPP evidence, and, therefore, better fit the two features. We used RER proxies measured as the ratio of export unit values, wholesale prices, value added deflators, unit labor costs, normalized unit labor costs and consumer prices, for a sample of 16 industrial countries, with quarterly data from 1975 to 2002. PPP was tested using both the ADF and the DF-GLS unit root test of the RER series. The RER measured as WPI ratios was the one for which PPP evidence was found for the larger number of countries: six out of sixteen. The worst measure of all was the RER based on the ratio of foreign CPIs and domestic WPI. No evidence of PPP at all was found for this measure
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||11 Aug 2004|
|Contact details of provider:|| Phone: 1 212 998 3820|
Fax: 1 212 995 4487
Web page: http://www.econometricsociety.org/pastmeetings.asp
More information through EDIRC
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.:
- Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
- Elliott, Graham, 1999.
"Efficient Tests for a Unit Root When the Initial Observation Is Drawn from Its Unconditional Distribution,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 767-783, August.
- Tom Doan, "undated". "ERSTEST: RATS procedure to perform Elliott-Rothenberg-Stock unit root tests," Statistical Software Components RTS00066, Boston College Department of Economics.
- Alan M. Taylor, 2002. "A Century Of Purchasing-Power Parity," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 139-150, February.
- Rudiger Dornbusch, 1985. "Purchasing Power Parity," NBER Working Papers 1591, National Bureau of Economic Research, Inc.
- Lucio Sarno & Mark P. Taylor, 2002.
"Purchasing Power Parity and the Real Exchange Rate,"
IMF Staff Papers,
Palgrave Macmillan, vol. 49(1), pages 1-5.
- Sarno, Lucio & Taylor, Mark P, 2001. "Purchasing Power Parity and the Real Exchange Rate," CEPR Discussion Papers 2913, C.E.P.R. Discussion Papers.
- Perron, Pierre & Rodriguez, Gabriel, 2003.
"GLS detrending, efficient unit root tests and structural change,"
Journal of Econometrics,
Elsevier, vol. 115(1), pages 1-27, July.
- PERRON, Pierre & RODRIGUEZ, Gabriel, 1998. "GLS Detrending, Efficient Unit Root Tests and Structural Change," Cahiers de recherche 9809, Universite de Montreal, Departement de sciences economiques.
- Tom Doan, "undated". "GLSDETREND: RATS procedure to perform local to unity GLS detrending," Statistical Software Components RTS00077, Boston College Department of Economics.
- Tom Doan, "undated". "PERRONRODRIGUEZ: RATS procedure to perform Perron-Rodriguez unit root test allowing for break at unknown date," Statistical Software Components RTS00156, Boston College Department of Economics.
- Chinn, Menzie D., 2000.
"Before the fall: were East Asian currencies overvalued?,"
Emerging Markets Review,
Elsevier, vol. 1(2), pages 101-126, September.
- Menzie D. Chinn, 1998. "Before the Fall: Were East Asian Currencies Overvalued?," NBER Working Papers 6491, National Bureau of Economic Research, Inc.
- Froot, Kenneth A. & Rogoff, Kenneth, 1995.
"Perspectives on PPP and long-run real exchange rates,"
Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 32, pages 1647-1688
- Ken Froot & Kenneth Rogoff, "undated". "Perspectives on PPP and Long-Run Real Exchange Rates," Working Paper 32027, Harvard University OpenScholar.
- Kenneth A. Froot & Kenneth Rogoff, 1994. "Perspectives on PPP and Long-Run Real Exchange Rates," NBER Working Papers 4952, National Bureau of Economic Research, Inc.
- Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-836, July.
- Takatoshi Ito & Tamim Bayoumi & Peter Isard & Steven A. Symansky, 1996. "Exchange Rate Movements and Their Impact on Trade and Investment in the APEC Region," IMF Occasional Papers 145, International Monetary Fund.
- 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, vol. 17(4), pages 597-614, August.
When requesting a correction, please mention this item's handle: RePEc:ecm:latm04:247. 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: (Christopher F. Baum)
If references are entirely missing, you can add them using this form.