Intra-National, Intra-Continental, and Intra-Planetary PPP

Charles Engel, Michael K. Hendrickson and John Rogers

No 6069, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper builds a model of adjustment toward PPP for a panel of real exchange rates. The model eliminates some inconsistencies in previous models, which implied a model for the real exchange rate of country B relative to country C that was not commensurate with the posited model of the real exchange rate for A relative to B, and A relative to C. The model allows us to handle correlations across exchange rates in a panel in a natural way. We put restrictions on an underlying model which yields a simple covariance matrix that can be easily estimated by GLS methods. We also put restrictions on the underlying model which allow us to easily estimate a panel PPP model in which the speed of adjustment is not the same for all real exchange rates. Our model, applied to the price levels of eight cities in four countries and two continents, does not find evidence in favor of reversion of PPP.

Date: 1997-06
Note: IFM
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Citations: View citations in EconPapers (29)

Published as Journal of the Japanese and International Economics, Vol. 11 (1997): 480- 501.

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Related works:
Journal Article: Intranational, Intracontinental, and Intraplanetary PPP (1997)
Working Paper: Intra-national, intra-continental, and intra-planetary PPP (1997)
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