A Test of Long-Run Purchasing Power Parity Using Annual Data for Seven Countries, 1900-88

Michael Bleaney

Economia Internazionale / International Economics, 1992, vol. 45, issue 2, 180-196

Abstract: Long-run purchasing power parity (PPP) is» tested on annual data f or seven countries from 1900 to 1988, using co-integration techniques. The results f or the period up to 1972 tend to support the PPP hypothesis, but there is evidence of considerable non-normality and heteroscedasticity. Results are much less supportive of PPP when a heteroscedasticity correction is applied; a result, which reflects the much greater weight, attached to periods with low relative price movements. In the floating-rate period since 1973 there has been greater volatility and persistence of real exchange rate movements, but there is no evidence to suggest that the mean-reverting tendency is weaker than before.

Date: 1992
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