Discrepancies between Purchasing Power Parities and Exchange Rates under the Law of One Price: A Puzzle (partly) Explained?

Leon Podkaminer

No 69, wiiw Working Papers from The Vienna Institute for International Economic Studies, wiiw

Abstract: European Comparison Project data (years 1999-2008) are used for an estimation of cross-country systems (AIDS) of consumer demand functions defined over durable and non-durable tradable goods and non-tradable services. General exchange equilibrium models of inter-EU trade generate equalized relative prices of tradable goods. But domestic relative prices of services become more dispersed and can move the PPP/ER ratios away from unity. PPP/ER discrepancies may be sustained even when there are no impediments to free trade.

Keywords: Purchasing Power Parity; exchange rate; PPP/ER discrepancy; Law of One Price; Balassa-Samuelson Effect; trade integration; computable general equilibrium; cross-country systems of demand functions; Almost Ideal Demand System; tradable goods; non-tradable goods (search for similar items in EconPapers)
JEL-codes: D12 D58 F11 F15 F31 O57 (search for similar items in EconPapers)
Pages: 18 pages including 5 Tables
Date: 2010-09
New Economics Papers: this item is included in nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published as wiiw Working Paper

Downloads: (external link)
https://wiiw.ac.at/discrepancies-between-purchasin ... plained-dlp-2200.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wii:wpaper:69

Ordering information: This working paper can be ordered from
https://wiiw.ac.at

Access Statistics for this paper

More papers in wiiw Working Papers from The Vienna Institute for International Economic Studies, wiiw Contact information at EDIRC.
Bibliographic data for series maintained by Customer service ().