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Does the purchasing power parity hypothesis hold after 1998?

  • Zanetti Chini, Emilio

We investigate the empirical support to the Purchasing Power Parity hypothesis by using sixteen real exchange rates for the decade 1999-2009. The literature has recently arrived to a solution to the two PPP puzzles if considering the post-Bretton Woods period from 1975 to 1998. Time series-based studies consider few cases, while panel-based studies have been recently criticized. Multivariate and panel cointegration, and nonlinear models are here implemented. The theory is rejected and both the puzzles remain unsolved if considering a linear structure, while a nonlinear scenario seems to allow for a partial solution to the first puzzle.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 27225.

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Date of creation: 15 Nov 2010
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Handle: RePEc:pra:mprapa:27225
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