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Additional Evidence of Long-Run Purchasing Power Parity with Restricted Structural Change

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  • Papell, David H.
  • Prodan, Ruxandra

Abstract

We investigate two alternative versions of Purchasing Power Parity (PPP): reversion to a constant mean in the spirit of Cassel and reversion to a constant trend in the spirit of Balassa and Samuelson, using long-span real exchange rate data for industrialized countries. We develop unit root tests that both account for structural change and maintain a long-run mean or trend. With conventional tests, previous research finds evidence of some variant of PPP for 9 of the 16 countries. With the unit root tests in the presence of restricted structural change, we find evidence of PPP for five additional countries.

Suggested Citation

  • Papell, David H. & Prodan, Ruxandra, 2006. "Additional Evidence of Long-Run Purchasing Power Parity with Restricted Structural Change," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(5), pages 1329-1349, August.
    • Handle: RePEc:mcb:jmoncb:v:38:y:2006:i:5:p:1329-1349
    DOI: 10.1353/mcb.2006.0073
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