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Price Indexes are a Problem for Testing PPP

Frederick Wallace

MPRA Paper from University Library of Munich, Germany

Abstract: This note illustrates a problem in purchasing power parity studies that test for stationarity of the real exchange rate. If the real rate series is constructed using price indexes then the real exchange rate may not be stationary even if the law of one price always holds for every good in the indexes.

Keywords: PPP; real exchange rate; price indexes (search for similar items in EconPapers)
JEL-codes: C22 F31 (search for similar items in EconPapers)
Date: 2015-07-27
New Economics Papers: this item is included in nep-opm
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