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Purchasing Power Parity and Spanish Provinces, 1940-1992


  • Irene Olloqui
  • Simón Sosvilla-Rivero


In this paper we empirically assess the validity of the PPP hypothesis from a new point of view. Instead of examining international data, we analyse PPP for Spanish provinces, eliminating many factors frequently offered to explain the failure of PPP. To that end, we make use of annual CPI data covering the 1940-1992 period. We apply time series analysis that allows for the presence of breaks in the trend of that series. We examine all possible bilateral relationships between provincial CPIs, running 2,450 regressions and computing 7,450 statistical tests. Our results are very suggestive since the PPP hypothesis is rejected by the data, even though in our case potential factors explaining the failure of PPP do not apply. Indeed, using robust versions of traditional cointegration techniques, although we find long-run relationships between provincial CPIs in many cases, such relationships do not satisfy in general the restrictions imposed by the PPP. On the other hand, our results indicate long-run relationships for almost all bilateral combinations of provincial CPIs when structural breaks are taken into account, being such breaks statistically significant. In this way, we illustrate how the formal consideration of eventual structural breaks may be useful for a more correct specification of an econometric model. Nevertheless, even with structural breaks the restrictions implied by PPP do not hold.

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  • Irene Olloqui & Simón Sosvilla-Rivero, "undated". "Purchasing Power Parity and Spanish Provinces, 1940-1992," Working Papers 2000-24, FEDEA.
  • Handle: RePEc:fda:fdaddt:2000-24

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    References listed on IDEAS

    1. Peracchi, Franco & Welch, Finis, 1994. "Trends in Labor Force Transitions of Older Men and Women," Journal of Labor Economics, University of Chicago Press, vol. 12(2), pages 210-242, April.
    2. Michele Boldrin & Sergi Jimenez-Martin & Franco Peracchi, 1999. "Social Security and Retirement in Spain," NBER Chapters,in: Social Security and Retirement around the World, pages 305-353 National Bureau of Economic Research, Inc.
    3. Teresa Villagarcía, 1995. "Análisis econométrico del tránsito a la jubilación para trabajadores de edad avanzada," Investigaciones Economicas, Fundación SEPI, vol. 19(1), pages 65-81, January.
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