Estimating Yen/Dollar and Mark/Dollar Purchasing Power Parities

Kenichi Ohno
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Kenichi Ohno: International Monetary Fund

IMF Staff Papers, 1990, vol. 37, issue 3, 700-725

Abstract: A new technique for estimating purchasing power parity (PPP) exchange rates that makes use of price pressure exerted by exchange rate deviation is presented. The methodology consists of two equations for relative prices and relative costs, which are derived from a structural model, and offers a more satisfactory solution to the "base-year" problem than existing methods. The yen/dollar and mark/dollar PPP exchange rates are estimated and compared with those derived from other approaches. The closeness of these estimates shows that PPP estimation, although not a trivial exercise, can be performed with scientific accuracy.

Date: 1990
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