Premium
Purchasing Power Parity in the Long Run
Author(s) -
ABUAF NISO,
JORION PHILIPPE
Publication year - 1990
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1990.tb05085.x
Subject(s) - purchasing power parity , random walk , relative purchasing power parity , econometrics , economics , random walk hypothesis , contrast (vision) , parity (physics) , purchasing , exchange rate , financial economics , statistics , monetary economics , computer science , mathematics , operations management , geography , context (archaeology) , physics , archaeology , particle physics , artificial intelligence , stock market
This paper re‐examines the evidence on Purchasing Power Parity (PPP) in the long run. Previous studies have generally been unable to reject the hypothesis that the real exchange rate follows a random walk. If true, this implies that PPP does not hold. In contrast, this paper casts serious doubt on this random walk hypothesis. The results follow from more powerful estimation techniques, applied in a multilateral framework. Deviations from PPP, while substantial in the short run, appear to take about three years to be reduced in half.