Long-run purchasing power parity during the recent float

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Original languageEnglish
Pages (from-to)181-192
Journal / PublicationJournal of International Economics
Issue number1-2
Publication statusPublished - Feb 1993
Externally publishedYes


This paper examines the relevance of long-run purchasing power parity (PPP), which allows for measurement errors, during the recent floating exchange rate period. Previous empirical studies generally fail to find support for long-run PPP over this period. In this paper. In this paper the cointegration property of exchange rates and prices is examined using maximum likelihood procedure, and we find significant evidence favorable to long-run PPP. Further tests for symmetry and proportionality indicate that these two conditions are not generally with the data. The results support the hypothesis of long-run PPP with measurement errors in prices. © 1993.