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Internal Relative Price Stationarity in Long‐Run Purchasing Power Parity
Author(s) -
Boucher Breuer Janice,
Flynn Lippert Alston
Publication year - 1997
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00050
Subject(s) - purchasing power parity , relative price , economics , monetary economics , relative purchasing power parity , price level , law of one price , econometrics , mid price , exchange rate
This study demonstrates that the joint relationship among domestic traded‐goods prices, dometic nontraded‐goods prices, foreign traded‐goods prices, and foreign nontraded‐goods prices is important to understanding rejections or confirmations of long‐run PPP. This joint relationship is defined as the “cross‐country internal relative price structure.” For nine of the ten pairs of countries studied, the cross‐country internal relative price structure is found to be stationary; thus, factors other than the influence of nontraded‐goods prices must be responsible for the rejections of long‐run PPP.