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Speed of Reversion to PPP with Structural Breaks for Brazilian Cities

Felipe S. Bastos, Elano F. Arruda, Rafael B. Barbosa and Roberto Ferreira ()

International Journal of Economics and Finance, 2018, vol. 10, issue 4, 15-24

Abstract: This article analyzes the effect of introducing structural breaks in calculating the convergence speed of relative prices for Brazilian cities in the period from 1991.01 to 2016.11. Three structural break dates were endogenously chosen (1996.02, 2001.12 and 2010.10) and they represent different situations of the Brazilian economy, with impacts on intra-national relative prices. The convergence speed, measured by the half-life, declined by approximately 77% after controlling for these structural changes. The result was robust to changes in numeraire both for calculation of the half-life and estimation of the structural break dates, and indicates the importance of considering structural breaks in calculating intra-national purchasing power parity, as found in other studies.

Keywords: purchasing power parity; structural breaks; nickell bias; aggregation bias; Brazilian cities (search for similar items in EconPapers)
JEL-codes: R00 Z0 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:ibn:ijefaa:v:10:y:2018:i:4:p:15-24