Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
10477716 | Journal of International Money and Finance | 2005 | 24 Pages |
Abstract
We implement novel tests of general relative purchasing power parity (PPP), defined as a long-run unit elasticity of the nominal exchange rate with respect to relative national prices, allowing for potentially permanent real exchange rate shocks. The finite-sample properties of the estimators used are analyzed through Monte Carlo analysis, allowing for country heterogeneity, cross-sectional dependence and non-stationary disturbances. Application to panel data sets of industrialized and developing economies reveals that inflation differentials are on average reflected one-for-one in long-run nominal exchange rate depreciation-i.e. that general relative PPP holds.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Jerry Coakley, Robert P. Flood, Ana M. Fuertes, Mark P. Taylor,