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An Alternative Test of Purchasing Power Parity


  • Frederick H. Wallace

    (Prairie View A&M University)

  • Gary L. Shelley

    (East Tennessee State University)


The long-horizon approach of Fisher and Seater (1993) is applied to the data developed by Taylor (2002) to test for purchasing power parity (PPP). Even after accounting for the low power of the test, the evidence is generally supportive of PPP.

Suggested Citation

  • Frederick H. Wallace & Gary L. Shelley, 2005. "An Alternative Test of Purchasing Power Parity," International Finance 0502009, EconWPA.
  • Handle: RePEc:wpa:wuwpif:0502009
    Note: Type of Document - doc; pages: 12. 12 pages, MS Word (2003) file

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    References listed on IDEAS

    1. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
    2. Patrick J. Coe & James M. Nason, 2004. "Long-run monetary neutrality and long-horizon regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(3), pages 355-373.
    3. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    4. Coe, Patrick J. & Nason, James M., 2003. "The long-horizon regression approach to monetary neutrality: how should the evidence be interpreted?," Economics Letters, Elsevier, vol. 78(3), pages 351-356, March.
    5. Mark P. Taylor, 1995. "The Economics of Exchange Rates," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 13-47, March.
    6. Alan M. Taylor & Mark P. Taylor, 2004. "The Purchasing Power Parity Debate," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 135-158, Fall.
    7. 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.
    8. Andrews, Donald W K, 1989. "Power in Econometric Applications," Econometrica, Econometric Society, vol. 57(5), pages 1059-1090, September.
    9. 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.
    10. Fisher, Mark E & Seater, John J, 1993. "Long-Run Neutrality and Superneutrality in an ARIMA Framework," American Economic Review, American Economic Association, vol. 83(3), pages 402-415, June.
    11. Serletis, Apostolos & Gogas, Periklis, 2004. "Long-horizon regression tests of the theory of purchasing power parity," Journal of Banking & Finance, Elsevier, vol. 28(8), pages 1961-1985, August.
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    Cited by:

    1. Frederick Wallace, 2011. "Purchasing power parity in Mexico: a historical note," Applied Economics Letters, Taylor & Francis Journals, vol. 18(4), pages 349-352.
    2. repec:ebl:ecbull:v:6:y:2007:i:31:p:1-9 is not listed on IDEAS
    3. Frederick Wallace, 2013. "Cointegration tests of purchasing power parity," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 149(4), pages 779-802, December.
    4. Dimitriou, Dimitrios & Simos, Theodore, 2013. "Testing purchasing power parity for Japan and the US: A structural-break approach," Japan and the World Economy, Elsevier, vol. 28(C), pages 53-59.
    5. Pedro Isaac Chávez López, 2014. "Paridad de poder de compra, cambios estructurales y memoria larga: una aplicación para el caso de México," Graduate theses (Spanish) TESG 001, CIDE, División de Economía.
    6. de Roode, F.A., 2014. "Model uncertainty in financial markets : Long run risk and parameter uncertainty," Other publications TiSEM c425daf8-c7a3-4ea4-8b18-3, Tilburg University, School of Economics and Management.
    7. repec:ebl:ecbull:v:6:y:2008:i:33:p:1-8 is not listed on IDEAS
    8. repec:spr:laecrv:v:26:y:2017:i:1:d:10.1007_s40503-017-0042-9 is not listed on IDEAS
    9. Miguel Carvalho & Paulo Júlio, 2012. "Digging out the PPP hypothesis: an integrated empirical coverage," Empirical Economics, Springer, vol. 42(3), pages 713-744, June.
    10. Frederick Wallace, 2008. "Nonlinear unit root tests of PPP using long-horizon data," Economics Bulletin, AccessEcon, vol. 6(33), pages 1-8.
    11. Shelley, Gary & Wallace, Frederick, 2007. "Co-movements in international dollar price levels," MPRA Paper 4133, University Library of Munich, Germany.
    12. repec:eee:mulfin:v:42-43:y:2017:i::p:74-94 is not listed on IDEAS
    13. Mario Gómez Aguirre & José Carlos A. Rodríguez Chávez, 2012. "Análisis de la paridad del poder de compra: evidencia empírica entre México y Estados Unidos," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 27(1), pages 169-207.
    14. Simpson, Marc W. & Grossmann, Axel, 2014. "An examination of the forward prediction error of U.S. dollar exchange rates and how they are related to bid-ask spreads, purchasing power parity disequilibria, and forward premium asymmetry," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 221-238.
    15. Tarkan Cavusoglu & Erdinc Telatar, 2011. "Purchasing Power Parity Revisited: A Time-Varying Parameter Approach," Economics Bulletin, AccessEcon, vol. 31(3), pages 2701-2708.
    16. Mohsen Bahmani-Oskooee & Su Zhou & Ali Kutan, 2007. "A Century of Purchasing Power Parity: Further Evidence," Economics Bulletin, AccessEcon, vol. 6(31), pages 1-9.
    17. Wallace, Frederick & Lozano Cortés, René & Cabrera-Castellanos, Luis F., 2008. "Pruebas de cointegración de paridad de poder adquisitivo
      [Cointegration Tests of Purchasing Power Parity]
      ," MPRA Paper 10011, University Library of Munich, Germany.
    18. 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.
    19. Joe Cox, 2008. "Purchasing power parity and cultural convergence: evidence from the global video games market," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 32(3), pages 201-214, September.
    20. repec:eee:jimfin:v:77:y:2017:i:c:p:57-76 is not listed on IDEAS
    21. D. Ventosa-Santaulària & M. Gómez-Zaldívar & F. H. Wallace, 2015. "The real exchange rate, regime changes and volatility shifts," Applied Economics, Taylor & Francis Journals, vol. 47(24), pages 2445-2454, May.
    22. Shiu-Sheng Chen & Yu-Hsi Chou, 2010. "Exchange Rates and Fundamentals: Evidence from Long-Horizon Regression Tests," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 72(1), pages 63-88, February.

    More about this item


    Purchasing power parity; Fisher-Seater test;

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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