The Purchasing Power Parity Puzzle: An Update

Weshah Razzak

EERI Research Paper Series from Economics and Econometrics Research Institute (EERI), Brussels

Abstract: We show that the Purchasing Power Parity (PPP) puzzle, whereby the half-life of the shock to the real exchange rate is long and unjustifiable by monetary and financial shocks, is a result of specification and estimation issues. We provide an alternative specification for PPP and show that the half-life of the shock could be as short as 6.8 months and as long as 2 years, which is considerably shorter than what have been reported in the literature.

Keywords: PPP; unit root; half-life of shocks (search for similar items in EconPapers)
JEL-codes: C13 C18 F31 (search for similar items in EconPapers)
Date: 2018-06-05
New Economics Papers: this item is included in nep-ets, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: The Purchasing Power Parity Puzzle: An Update (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eei:rpaper:eeri_rp_2018_05

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