Testing for absolute purchasing power parity

Crownover, Collin; Pippenger, John; Steigerwald, Douglas G.

doi:10.1016/0261-5606(96)00035-6

Cited by 31 publications

(29 citation statements)

References 19 publications

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“…Finally, the variance of law-of-one-price deviations across goods is large, with the support of many of the densities being on the order of plus or minus 150%. 7 The …rst feature -the locations of the densities -suggests that law-of-one-price violations average out in the aggregate. Table 5 reports the estimated means and their standard errors.…”

Section: Deviations From the Law-of-one-pricementioning

confidence: 99%

“…Table 5 reports the estimated means and their standard errors. For most countries and time periods the average law-of-one-price deviation is statistically di¤erent from 7 Luxembourg, which has a …xed exchange rate with Belgium, is an interesting special case. Figure 1 shows that dispersion is substantially smaller for Luxembourg than for the remaining countries.…”

Section: Deviations From the Law-of-one-pricementioning

confidence: 99%

“…We use data on retail prices -prices denominated in local currency units -for a broad set of goods and services in all Europe 1 Exceptions are Robert Cumby (1996) who studies Big Mac hamburgers, Kenneth A. Froot, Michael Kim and Kenneth Rogo¤ (1995) who study wheat, butter and charcoal, Atish R. Gosh and Holger C. Wolf (1994) who study the Economist Magazine, Jonathan Haskel and Wolf (1998) who study IKEA furniture, and Mattias Lutz (2001) who studies automobiles. Recent work by Collin Crownover, John Pippenger and Douglas G. Steigerwald (1996), David C. Parsley and Shang-Jin Wei (2000) and John H. Rogers (2001) involve more extensive cross-sections. 2 For example, Engel and Rogers (1999) …nd that, across U.S. cities, the variability of changes in relative prices is larger for traded goods than for non-traded goods.…”

Section: Introductionmentioning

confidence: 99%

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Understanding European Real Exchange Rates

Crucini

Telmer

Zachariadis

2005

American Economic Review

244

189

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We study good-by-good deviations from the Law-of-One-Price for over 5,000 goods and services between European Union countries for the years 1975, 1980, 1985 and 1990. We …nd that between most countries there are roughly as many overpriced goods as there are underpriced goods. Equally-weighted and CPI-weighted averages of good-by-good relative prices generate relatively accurate predictions of most nominal cross-rates, as purchasing power parity (PPP) would suggest. These …ndings are robust across years, in spite of relatively large movements in nominal exchange rates. Variation around the averages is large but is found to be related to economically meaningful characteristics of goods such as international tradeability, non-tradedness of factors of production and the competitive structure of the markets in which the goods are sold. Using data on product brands, we …nd that product heterogeneity is at least as important as geography in explaining relative price dispersion. Overall, our data provide strong evidence that international goods markets are segmented, but (i) the evidence relies on absolute deviations from the Law-of-One-Price, not deviations from PPP, (ii) some markets are much more segmented than others, with the distinctions being consistent with economic theory.

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Section: Deviations From the Law-of-one-pricementioning

confidence: 99%

Section: Deviations From the Law-of-one-pricementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Understanding European Real Exchange Rates

Crucini

Telmer

Zachariadis

2005

American Economic Review

244

189

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“…In contrast, absolute PPP has been scarcely studied. Concretely, the validity of absolute PPP in G7 countries has been scarcely known since Crownover [8]. Zhang and Zou discuss absolute PPP of the 40 biggest countries against the US using panel data [9].…”

Section: Introductionmentioning

confidence: 99%

“…In popular studies (e.g., Lothian and Taylor [3]; Cheung et al [4]; Koedijk et al [5]; Bergin et al [6]; Huang and Yang [7]), the real exchange rates (RERs) are constructed by consumer, producer, wholesale, and other price indexes, rather than actual price levels. Thus, such constructed RER in these studies is used in testing relative PPP rather than absolute PPP (Crownover et al [8]; Zhang and Zou [9]). …”

Section: Introductionmentioning

confidence: 99%

Validity of Absolute Purchasing Power Parity in G7 Countries

Zhang¹,

Bian²

2016

dtem

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Abstract. In popular studies, the theory of relative purchasing power parity (PPP) is tested for the real exchange rates (RERs) that are constructed by price indexes. In this paper, we construct the bilateral RERs by general price levels and study the absolute PPP theory in G7 countries. Coefficient restriction and RER misalignment distribution tests reveal that absolute PPP holds for the RERs of Canada, France, Germany, and Japan against the US in the whole samples. For the RERs of Italy and the UK against the US, we find the Balassa-Samuelson effect's modification to the absolute PPP theory in the sub-samples.

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Real exchange rate behaviour: evidence from black markets

Luintel

2000

J. Appl. Econ.

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The behaviour of real exchange rates (relative to the US dollar) is examined using monthly data obtained from the black markets for foreign exchange of eight Asian developing countries. The data span is 31 years. The black market real exchange rates do not show excess volatility during the recent float which is in sharp contrast to the results reported elsewhere. Unit root tests in heterogeneous panels and variance ratio tests confirm their stationarity. Thus, we find support for PPP but not for the ‘survivorship’ bias (Froot and Rogoff, 1995). There is little evidence of segmented trends. Issues raised by Rogoff (1996)—of whether PPP would hold across countries with differing growth experience—and Lothian and Taylor (1996)—of whether the degree of relative price volatility may bias results in favour of mean reverting real exchange rates—are addressed. Copyright © 2000 John Wiley & Sons, Ltd.

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Testing for absolute purchasing power parity

Cited by 31 publications

References 19 publications

Understanding European Real Exchange Rates

Understanding European Real Exchange Rates

Validity of Absolute Purchasing Power Parity in G7 Countries

Real exchange rate behaviour: evidence from black markets

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