Inter-Temporal Purchasing Power Parity

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

No 14-10, Working Papers from Davidson College, Department of Economics

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 betweenthe 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.

Keywords: Purchasing power parity; Real exchange rate; Inter-temporal trade (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
Date: 2014-05
New Economics Papers: this item is included in nep-opm
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Published in Open Economies Review, November 2015, Volume 26, Issue 5, pages 869-891

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Journal Article: Inter-Temporal Purchasing Power Parity (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:dav:wpaper:14-10

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