Is the real effective exchange rate biased against the PPP hypothesis?

We show that the use of the real effective exchange rate to test for purchasing power parity, as in Astorga (2012) and other studies, introduces a bias against finding evidence of PPP. The bias is illustrated using unit root tests applied to bilateral real rates.

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Year of publication:	2012-09-29
Authors:	Ventosa-Santaulària, Daniel ; Wallace, Frederick ; Gómez-Zaldívar, Manuel
Institutions:	Volkswirtschaftliche Fakultät, Ludwig-Maximilians-Universität München
Subject:	PPP \| real effective exchange rate \| stationarity

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Extent:	application/pdf
Series:	MPRA Paper.
Type of publication:	Book / Working Paper
Classification:	C22 - Time-Series Models ; F31 - Foreign Exchange
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10011109554