Testing for Absolute Purchaing Power ParityJournal of International Money and Finance (1996)
AbstractPurchasing power parity (PPP) is an equilibrium condition equating the nominal exchange rate between two countries with the relative price of an identical bundle of goods in each country. Previous time-series researchers use price indicies to study PPP, so they study relative PPP. We use new data that measures price levels, so we test absolute PPP. Price levels provide a test of absolute PPP because, unlike price indicies, do not contain a base period in which the nominal exchange rate equals the price ratio by construction. We find support for absolute PPP.
- price level,
- purchaing power parity,
Citation InformationDouglas G Steigerwald, Collin Crownover and John Pippenger. "Testing for Absolute Purchaing Power Parity" Journal of International Money and Finance Vol. 15 Iss. 5 (1996)
Available at: http://works.bepress.com/douglas_steigerwald/13/