International real interest rate differentials, purchasing power parity and the behaviour of real exchange rates: the resolution of a conundrum

2004 ◽  
Vol 9 (1) ◽  
pp. 15-23 ◽  
Author(s):  
Mark P. Taylor ◽  
Lucio Sarno
Keyword(s):  
Interest Rate ◽  
Exchange Rates ◽  
Purchasing Power Parity ◽  
Real Interest Rate ◽  
Real Exchange Rates ◽  
Purchasing Power ◽  
Power Parity ◽  
Interest Rate Differentials

Purchasing Power Parity and the Law of One Price: Evidence from Commodity Prices in Asian Countries

2015 ◽  
Vol 15 (2) ◽  
pp. 231-240 ◽  
Author(s):  
Mohsen Bahmani-Oskooee ◽  
ABM Nasir
Keyword(s):  
Exchange Rates ◽  
Purchasing Power Parity ◽  
Real Exchange Rates ◽  
Strong Support ◽  
Commodity Prices ◽  
Law Of One Price ◽  
Purchasing Power ◽  
Power Parity ◽  
Industrial Countries ◽  
The Law

Almost all previous studies that have tested the law of one price or Purchasing Power Parity theory (PPP) have used either real effective exchange rates or bilateral real exchange rates which are constructed using CPI or PPI data. Most of these studies have failed to support the PPP mostly due to aggregation bias. A few recent studies, have, therefore used commodity prices in different countries and have provided strong support for the theory. These studies have mostly used data from industrial countries. In this paper, we use individual prices of 52 retail items from 15 cities in Asia and test for stationarity of the real exchange rate and speed of adjustment. We provide support for PPP in 63% of the cases. We also find that using individual prices lead to faster convergence of real rates toward their PPP values.

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