THE PURCHASING POWER PARITY PERSISTENCE PUZZLE: EVIDENCE FROM BLACK MARKET REAL EXCHANGE RATES

Mario Cerrato, Neil Kellard and Nicholas Sarantis

Manchester School, 2008, vol. 76, issue 4, pages 405-423

Abstract: In this paper we analyse the purchasing power parity (PPP) persistence puzzle using a unique data set of black market real exchange rates for 36 emerging market economies and (exact and approximate) median unbiased univariate and panel estimation methods. We construct bootstrap confidence intervals for the half-lives, as well as exact quantiles of the median function for different significance levels using Monte Carlo simulation. Even after accounting for a number of econometric issues, the PPP persistence puzzle is still a striking characteristic of the majority of emerging market countries. However, in a minority of exchange rates, the PPP puzzle is removed. Copyright © 2008 The Authors. Journal compilation © 2008 Blackwell Publishing Ltd and The University of Manchester.

Date: 2008
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