Purchasing Power Parity in Developing Countries

This article evaluates the long-term foreign exchange rate on the Purchasing Power Parity model in development countries. The tests were applied to seven countries in the Americas, eight countries in Africa, five in Asia, and five in the Middle East, using the United States as the reference country. To test the model, we used the consumer price index, the implicit GDP deflator, the wholesale price index, and the producer price index; the exchange rates were period-ending rates, for the period from 1965 to 2015, with annual frequency. We applied the Vector Error-Correction Model as a mechanism for correcting errors of the co-integration vectors, using STATA-14 software. Of the projections thereby produced, only four combinations corroborated the theory, therefore it is possible to say that we were unable to corroborate PPP