Purchasing power parity in the short and long run: a reappraisal of the post-1973 evidence |
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| Authors: | D M Nachane A Chrissanthaki |
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| Institution: | 1. University of British Columbia , Canada;2. Department of Economics , University of Bombay , Vidyanagar 1st Road, Bombay 400 098 , India;3. Statistical Division, European Communities , Luxembourg |
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| Abstract: | In this paper, an attempt is made to separate the short-run and long-run aspects of the purchasing power parity (PPP) relationship, using the techniques of band-spectral regression and cointegration for eight industrialized countries. The long-run PPP is first tested for all the eight countries, with reference to their nominal bilateral exchange rates vis-à-visthe US dollar. For five European currencies, the analysis is repeated with respect to the Deutschmark, with a separate consideration of the post-EMS period. In the concluding sections, possible reasons for PPP deviations are examined. |
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