Price Level Convergence, Purchasing Power Parity and Multiple Structural Breaks: An Application to US Cities

This article analyzes the effect of introducing structural breaks in calculating the convergence speed of relative prices for Brazilian cities in the period from 1991.01 to 2016.11. Three structural break dates were endogenously chosen (1996.02, 2001.12 and 2010.10) and they represent different situations of the Brazilian economy, with impacts on intra-national relative prices. The convergence speed, measured by the half-life, declined by approximately 77% after controlling for these structural changes. The result was robust to changes in numeraire both for calculation of the half-life and estimation of the structural break dates, and indicates the importance of considering structural breaks in calculating intra-national purchasing power parity, as found in other studies.

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The purchasing power parity revisited: New evidence for 16 OECD countries from panel unit root tests with structural breaks

Journal of International Financial Markets Institutions and Money ◽

10.1016/j.intfin.2006.08.002 ◽

2008 ◽

Vol 18 (2) ◽

pp. 137-146 ◽

Cited By ~ 14

Author(s):

Paresh Kumar Narayan

Keyword(s):

Purchasing Power Parity ◽

Unit Root ◽

Structural Breaks ◽

Oecd Countries ◽

Unit Root Tests ◽

Purchasing Power ◽

Panel Unit Root Tests ◽

Power Parity ◽

Panel Unit Root ◽

New Evidence

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Purchasing power parity in GIIPS countries: evidence from unit root tests with breaks and non-linearity

Applied Economic Analysis ◽

10.1108/aea-10-2020-0146 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Saban Nazlioglu ◽

Mehmet Altuntas ◽

Emre Kilic ◽

Ilhan Kucukkkaplan

Keyword(s):

Purchasing Power Parity ◽

Unit Root ◽

Design Methodology ◽

Structural Breaks ◽

Real Exchange Rates ◽

Unit Root Tests ◽

Purchasing Power ◽

Power Parity ◽

Content Type ◽

Linear Framework

Purpose This paper aims to test purchasing power parity (PPP) hypothesis for Greece, Italy, Ireland, Portugal and Spain, which are known as the GIIPS countries. Design/methodology/approach The authors conduct a comprehensive analysis by using unit root approaches without and with structural breaks and non-linearity. Findings The PPP is valid for the GIIPS countries. Considering structural breaks in non-linear framework plays a crucial role. Originality/value There is no empirical study testing PPP hypothesis by focusing on the GIIPS countries. This study further takes into account for structural breaks and non-linearity in the real exchange rates of these countries.

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Persistence in real exchange rate convergence

Studies in Nonlinear Dynamics & Econometrics ◽

10.1515/snde-2012-0039 ◽

2014 ◽

Vol 18 (1) ◽

Cited By ~ 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.

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