EMPIRICAL VERIFICATION OF THE PURCHASING POWER PARITY

This paper attempts to empirically verify the Purchasing Power Parity. Particular attention has been paid to the possible reasons behind the deviations of exchange rates from the values implied by the parity and to the theoretical justifi-cation of this phenomenon. Formal empirical verification was based on econometric tools appropriate to investigate the cointegration of exchange rates and prices, as well as the stationarity of real exchange rates. The analysis used quarterly data sourced from the “OECD Statistical Compendium 2009” during the 1970-2009 time period. The paper ends with interpretation of findings in the context of the exiting international literature.