scholarly journals Purchasing power parity and the long memory properties of real exchange rates: Does one size fit all?

2011 ◽  
Vol 28 (3) ◽  
pp. 1279-1290 ◽  
Author(s):  
Marcel Aloy ◽  
Mohamed Boutahar ◽  
Karine Gente ◽  
Anne Péguin-Feissolle
Keyword(s):  
Exchange Rates ◽  
Purchasing Power Parity ◽  
Long Memory ◽  
Real Exchange Rates ◽  
Purchasing Power ◽  
Power Parity

scholarly journals Persistence in real exchange rate convergence

2014 ◽  
Vol 18 (1) ◽  
Author(s):  
Thanasis Stengos ◽  
M. Ege Yazgan
Keyword(s):  
Exchange Rates ◽  
Purchasing Power Parity ◽  
Long Memory ◽  
Structural Breaks ◽  
Real Exchange Rates ◽  
Purchasing Power ◽  
Memory Process ◽  
Power Parity ◽  
Long Memory Process ◽  
Memory Parameter

AbstractIn this paper we use a long memory framework to examine the validity of the Purchasing Power Parity (PPP) hypothesis using both monthly and quarterly data for a panel of 47 countries over a 50 year period (1957–2009). The analysis focuses on the long memory parameter d that allows us to obtain different convergence classifications depending on its value. Our analysis allows for the presence of smooth structural breaks and it does not rely on the use of a benchmark. Overall the evidence strongly points to the presence of a long memory process, where 0.5<d<1. The implication of our results is that we find long memory mean reverting convergence, something that is also consistent with Pesaran, M. H., R. P. Smith, T. Yamagata, and L. Hvozdyk. 2009. “Pairwise Tests of Purchasing Power Parity.” Econometric Reviews 28: 495–521. In explaining the speed of convergence as captured by the estimated long memory parameter d we find impediments to trade such as distance between neighboring countries and sticky prices to be mainly responsible for the slow adjustment of real exchange rates to PPP rather than nominal rates for all country groups but Asia, where the opposite is true.

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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