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Price Indexes are a Problem for Testing PPP

Author

Listed:
  • Wallace, Frederick

Abstract

This note illustrates a problem in purchasing power parity studies that test for stationarity of the real exchange rate. If the real rate series is constructed using price indexes then the real exchange rate may not be stationary even if the law of one price always holds for every good in the indexes.

Suggested Citation

  • Wallace, Frederick, 2015. "Price Indexes are a Problem for Testing PPP," MPRA Paper 65786, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:65786
    as

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    File URL: https://mpra.ub.uni-muenchen.de/65786/1/MPRA_paper_65786.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Manuel Gómez-Zaldívar & Daniel Ventosa-Santaulària & Frederick Wallace, 2013. "The PPP hypothesis and structural breaks: the case of Mexico," Empirical Economics, Springer, vol. 45(3), pages 1351-1359, December.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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