Inter-Temporal Purchasing Power Parity

Janice Breuer (), Vikram Kumar () and Shyam Gouri Suresh
Authors registered in the RePEc Author Service: Janice Breuer Bass

Open Economies Review, 2015, vol. 26, issue 5, 869-891

Abstract: We adapt the Casselian version of purchasing power parity to a two-period framework. In this framework, we show that inter-temporal trade plays a role and can drive a wedge between the nominal exchange rate and relative prices. The size of trade flows, the real interest rate, and the constraint on trade balance over two periods establish the conditions under which Casselian and inter-temporal purchasing power parity hold. We test our model using consumer price indices and bilateral trade flows between the United States and the United Kingdom. We find evidence favorable to inter-temporal purchasing power parity. Copyright Springer Science+Business Media New York 2015

Keywords: Purchasing power parity; Real exchange rate; Inter-temporal trade; F31 (search for similar items in EconPapers)
Date: 2015
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Working Paper: Inter-Temporal Purchasing Power Parity (2014)
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DOI: 10.1007/s11079-014-9338-4

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