Modeling Deviations from Purchasing Power Parity (PPP)

Joshua Aizenman

No 1066, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The volatility of the exchange rate under floating rates can be interpreted in terms of approaches that allow for short term price rigidity as well as in terms of models that consider the magnification effect of new information. This paper combines the two approaches into a unified framework,where the degree to which prices are rigid is determined endogenously. It is shown that the variance of percentage deviations from ppp has an upper bound,and that the relationship between the variance of deviations from ppp and the aggregate variability is not monotonic. Allowing for a short-run Phillips curve with optimal indexation, it is also demonstrated that a higher price flexibility will reduce deviations from ppp and output volatility.

Date: 1983-01
Note: ITI IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published as Aizenman, Joshua. "Modeling Deviations from Purchasing Power Parity (PPP)." International Economic Review, Vol. 25, No. 1, (February 1984), pp. 175- 191.

Downloads: (external link)
http://www.nber.org/papers/w1066.pdf (application/pdf)

Related works:
Journal Article: Modeling Deviations from Purchasing Power Parity (PPP) (1984)
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:nbr:nberwo:1066

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w1066

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().