Real Disturbances, Relative Prices, and Purchasing Power Parity
This paper tests a modified version of Purchasing Power Parity, which hypothesizes that real shocks that alter equilibrium relative prices between tradables and non-tradables are responsible for the deviations from purchasing power parity. Using cointegration/error-correction methods and quarterly data from the post Bretton Woods period, we find supportive evidence that productivity, government spending, and real world oil price might account for deviations from purchasing power parity.
|Date of creation:||22 Feb 1995|
|Note:||The paper is a binary WordPerfect 5.1 file submitted via FTP. The document was prepared on a 486 IBM-compatible for printing on a LaserJet 4M. The author reports that the figures are not with the paper. Readers interested in receiving the figures should e-mail the author - sdibo at siucvmb.siu.edu .|
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