TESTING FOR LONG-RUN PURCHASING POWER PARITY IN THE POST BRETTON WOODS ERA: EVIDENCE FROM OLD AND NEW TESTS

. This article uses the most recent tests available to carry out a detailed empirical analysis of the validity of Purchasing Power Parity (PPP) for the exchange rates of 21 industrialized countries in the post-Bretton Woods period. It looks at the stationarity properties of the real exchange rates which are required for PPP to hold, and it also analyses the presence of cointegration between the nominal exchange rate and domestic and foreign prices. Overall, the results provide evidence in favor of PPP.