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Causal and Frequency Analyses of Purchasing Power Parity

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  • Jun Nagayasu

Abstract

A century after its development, the purchasing power parity theorem, which links exchange rates with prices, remains one of the most popular and influential economic theories. This study examines the relationship between exchange rates and prices from the perspectives of causality and spillovers. Using a panel of countries and advanced statistical methods, we estimate spillovers for all combinations of origins and destinations at di erent frequency bands, and show that their relationship is time-varying and multidirectional and has some validity at short and long time horizons. Furthermore, using exchange rate regimes, economic structures, currency crises, and trade openness, we identify economic conditions influencing the size and direction of spillovers.

Suggested Citation

  • Jun Nagayasu, 2021. "Causal and Frequency Analyses of Purchasing Power Parity," DSSR Discussion Papers 119, Graduate School of Economics and Management, Tohoku University.
    • Handle: RePEc:toh:dssraa:119
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    File URL: http://hdl.handle.net/10097/00129978
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    Cited by:

    1. Thomas L Bradley & Paul B Eberle, 2023. "Purchasing Power Parity In Russia And The Transitioning Economy 1990-1995," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 31, pages 85-111, June.
    2. Pippenger, John, 2022. "The Law Of One Price, Borders And Purchasing Power Parity," University of California at Santa Barbara, Economics Working Paper Series qt5b17d1dr, Department of Economics, UC Santa Barbara.
    3. Maryam Ishaq & Ghulam Ghouse & Muhammad Ishaq Bhatti, 2022. "Another Prospective on Real Exchange Rate and the Traded Goods Prices: Revisiting Balassa–Samuelson Hypothesis," Sustainability, MDPI, vol. 14(13), pages 1-17, June.
    4. Bilson, Chris & Brailsford, Tim & Rajaguru, Gulasekaran, 2022. "Covered interest rate parity deviations in the Asia-Pacific," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 77(C).
    5. Bonga-Bonga, Lumengo, 2023. "Do trade frictions distort the purchasing power parity (PPP) hypothesis? A closer look," MPRA Paper 119196, University Library of Munich, Germany.

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    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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