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Purchasing power parity and the theory of general relativity : the first tests
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Coakley, Jerry, Flood, Robert P., Fuertes, Ana M. and Taylor, Mark P. (2005) Purchasing power parity and the theory of general relativity : the first tests. Journal of International Money and Finance, 24 (2). pp. 293-316. doi:10.1016/j.jimonfin.2004.12.008 ISSN 0261-5606.
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Official URL: http://dx.doi.org/10.1016/j.jimonfin.2004.12.008
Abstract
We implement novel tests of general relative purchasing power parity (PPP), defined as a long-run unit elasticity of the nominal exchange rate with respect to relative national prices, allowing for potentially permanent real exchange rate shocks. The finite-sample properties of the estimators used are analyzed through Monte Carlo analysis, allowing for country heterogeneity, cross-sectional dependence and non-stationary disturbances. Application to panel data sets of industrialized and developing economies reveals that inflation differentials are on average reflected one-for-one in long-run nominal exchange rate depreciation—i.e. that general relative PPP holds.
Item Type: | Journal Article | ||||
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Divisions: | Faculty of Social Sciences > Warwick Business School | ||||
Journal or Publication Title: | Journal of International Money and Finance | ||||
Publisher: | Elsevier BV | ||||
ISSN: | 0261-5606 | ||||
Official Date: | March 2005 | ||||
Dates: |
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Volume: | 24 | ||||
Number: | 2 | ||||
Page Range: | pp. 293-316 | ||||
DOI: | 10.1016/j.jimonfin.2004.12.008 | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published | ||||
Access rights to Published version: | Restricted or Subscription Access |
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