Argentinean real exchange rate 1900-2006, test purchasing power parity theory

Marcos Dal Bianco

Estudios de Economia, 2008, vol. 35, issue 1 Year 2008, 33-64

Abstract: This paper tests the Purchasing Power Parity Theory of Exchange Rates dealing with Argentinean data for the period 1900-2006. This is equivalent to testing if the Real Exchange Rate is a stationary variable or if its components (the nominal exchange rate and the relative prices) are cointegrated. Since most works study developed countries or developing countries but with short span data, this paper aims to fill a gap in the wide PPP literature by studding a developing country with a long-run approach. This country is particularly interesting since during 20th century “Argentine economic performance tells a story of decline unparalleled in modern times” (Taylor 1992). The downfall of this once developed country has probably affected the behavior of its RER and the validity of PPP. To check this, we use a wide set of econometric techniques and found that the PPP theory is not verified in Argentina, since its RER appears as a non-stationary variable, and there is no evidence of cointegration between the nominal exchange rate and the relative prices. In particular, the Argentinean RER appears to be trend-stationary under structural breaks with a continuous real depreciation of the Argentinean currency, especially in the first half of XX century, which is consistent with theories that relate the secular impoverishment of a country with the depreciation of its RER, as the Balassa-Samuelson effect.

Keywords: Purchasing power parity; real exchange rate; stationarity; unit root test (search for similar items in EconPapers)
JEL-codes: C12 C22 C29 F31 F41 (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.econ.uchile.cl/uploads/publicacion/c243 ... 62f-8f4722f69eec.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:udc:esteco:v:35:y:2008:i:1:p:33-64

Access Statistics for this article

Estudios de Economia is currently edited by Rómulo Chumacero

More articles in Estudios de Economia from University of Chile, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Verónica Kunze ().