IDEAS home Printed from https://ideas.repec.org/a/taf/recsxx/v1y1998i1p179-207.html
   My bibliography  Save this article

Why PPP Real Exchange Rates Mislead

Author

Listed:
  • Larry A. Sjaastad

Abstract

This paper investigates the properties of the purchasing-power-parity (PPP) real exchange rate as a proxy for the true real exchange rate, which is defined as the relative price of traded goods. It finds that the PPP real exchange rate is prone to measurement error and examines the nature of that error. Measurement error is defined as the fraction of the variance of the PPP real exchange rate that has no counterpart in the true real exchange rate. That measurement error is estimated for seven small countries and the results indicate that, in most cases, the error component of PPP real exchange rates is extremely high.

Suggested Citation

  • Larry A. Sjaastad, 1998. "Why PPP Real Exchange Rates Mislead," Journal of Applied Economics, Taylor & Francis Journals, vol. 1(1), pages 179-207, November.
    • Handle: RePEc:taf:recsxx:v:1:y:1998:i:1:p:179-207
    DOI: 10.1080/15140326.1998.12040522
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/15140326.1998.12040522
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/15140326.1998.12040522?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. E. Sibel Yelten, 2003. "Real Effects of Movements in Nominal Exchange Rates: Application to the Asian Crisis," Journal of Applied Economics, Universidad del CEMA, vol. 6, pages 341-359, November.
    2. Clements, Kenneth W. & Fry, Renée, 2008. "Commodity currencies and currency commodities," Resources Policy, Elsevier, vol. 33(2), pages 55-73, June.
    3. Mardi Dungey & Renee Fry-McKibbin & Verity Linehan, 2014. "Chinese resource demand and the natural resource supplier," Applied Economics, Taylor & Francis Journals, vol. 46(2), pages 167-178, January.
    4. Sjaastad, Larry A. & Manzur, Meher, 2003. "Import Protection, Capital Flows, and Real Exchange Rate Dynamics," Journal of Applied Economics, Universidad del CEMA, vol. 6(1), pages 1-27, May.
    5. Mei-Hsiu Chen & Kenneth W Clements & Grace Gao, 2013. "Three Facts About World Metal Prices," Economics Discussion / Working Papers 13-01, The University of Western Australia, Department of Economics.
    6. Ms. Sibel Beadle, 2004. "Choosing the Correct Currency Anchor for a Small Economy: The Case of Nepal," IMF Working Papers 2004/142, International Monetary Fund.
    7. Xu, Zhenhui, 2003. "Purchasing power parity, price indices, and exchange rate forcasts," Journal of International Money and Finance, Elsevier, vol. 22(1), pages 105-130, February.
    8. Yelten, E. Sibel, 2003. "Real Effects of Movements in Nominal Exchange Rates: Application to the Asian Crisis," Journal of Applied Economics, Universidad del CEMA, vol. 6(2), pages 1-19, November.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:recsxx:v:1:y:1998:i:1:p:179-207. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/recs .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.