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The present paper exploits the idea that empirical estimates of the long-run PPP relationship may compound two distract influences coming from the behavior of market participants and policy makers when the latter are targeting the exchange rate. This tends to bias tests of longrun PPP against its acceptance. The validity of the theoretical arguments is assessed by drawing on the experience of two European Union countries, Greece and France, for the post-Bretton Woods period. Estimation biases due to the omission of policy effects are found to be significant only in the case of Greece. For France, our test results provide evidence bearing on the effectiveness of the competitive disinflation strategy pursued by the French authorities. JEL classification: C32; F31; F33 Keywords: Long-run PPP; Exchange rate targeting; Intervention policy; Multivariate cointegration

Although the question of whether Purchasing Power Parity (PPP) holds in the long run has been extensively studied, the answer is still controversial. Some of the strongest evidence is provided by Taylor (The Review of Economics and Statistics 84 [2002] 139-150), who concludes that longrun PPP held over the 20th century. We argue that this conclusion is quite sensitive to the use of sub-optimal lag selection in unit root tests. Using superior lag selection methods, we find that long-run PPP held for the real exchange rates of only 9 out of the 16 industrialized countries in Taylor's sample with the U.S. dollar as the base curt-ency. JEL Codes: C22, F31 Keywords: Purchasing power parity, unit root tests, lag selection., THE QUESTION OV whether Purchasing Power Parity (PPP) holds in the long run has been the subject of voluminous research. Some of the strongest evidence of long-run PPP is provided [...]

This paper reexamines the issue of long-run PPP using multiple panel tests in the framework of confirmatory analysis. Application of six panel tests under competing null hypotheses to the real exchange rates of 21 industrial countries yields seemingly contradictory evidence on the parity during the post-Bretton Woods period. Regardless of numeraire currency, four I(1) panel tests unanimously reject the null hypothesis in favor of long-run PPP, whereas two I(0) panel tests lend little support to the parity at conventional significance levels. Confirmatory analysis suggests that this puzzling result can be explained either by nonlinear dynamics of the real exchange rates or by a mixture of I(0) and I(1) series in the panel. Monte Carlo experiments indicate that potential mix of I(0) and I(1) series is more relevant to the empirical finding. The use of a sequential classification method sorts out six real exchange rates which exhibit most persistent deviations from long-run equilibrium. Systematic behavior of these series can be characterized better by country specific factors than by observable macroeconomic variables. JEL classification: C32; F31; F47 Keywords: PPP; Panel unit-root tests; Confirmatory analysis; Mixed panel; Sequential classification method

Despite two decades of implementing economic reforms, there is still a significant gap between official and black market exchange rates in Africa. African policy makers continue to implement exchange rate policies based largely on the assumption that purchasing power parity (PPP) holds. This paper examines whether there is empirical support for PPP in Africa. We used Johansen's cointegration technique and error correction modeling on annual data for black market exchange rates and CPI in 30 countries covering 1960-97. We found strong support for the PPP doctrine as a useful guide for exchange rate policy reform in Africa. Key words--African countries, black market exchange rates, cointegration tests, PPP

Rogoff suggested in 1996 that the dollar-yen real exchange rate represented a 'canonical' case of a trend in the equilibrium real exchange rate. The implied speed of adjustment of the dollar-yen real exchange rate is found to be substantially faster, with half-life shocks of less than 2 years, from estimates of a non-linear model which incorporates a deterministic trend proxying the equilibrium level. We also examine the power of unit root tests against smooth transition non-linear models which incorporate a deterministic trend and the robustness of such non-linear estimations using Monte Carlo and bootstrap simulations.

We study the dispersion of absolute price levels for US cities since 1918. By absolute price levels, we mean price indices that measure the cost of a given consumption basket at each point in time. We find strong evidence that city price levels converge over time and that the dispersion of price levels is lower for US cities than between OECD countries. We argue that price level convergence for US cities will produce bilateral real exchange rate nonstationarity. In this case, however, nonstationarity is not evidence against Purchasing Power Parity (PPP), rather it is the consequence of improved market integration. JEL classification: F31; F41 Keywords: Purchasing power parity; Real exchange rates

Updating Bilson's (1984) investment strategy using an out-of-sample forecast procedure, we find much smaller profits from a trading strategy based on purchasing power parity. Though the total profit is significant at a 5 percent level, it is substantially lower than what Bilson found. Our results suggest Bilson's excess profits are due to the sample of data used and the in-sample nature of the tests. Hence, this paper demonstrates that the simple investment strategy leads to the same conclusion that econometric testing does; namely, that purchasing power parity is only marginally useful in forecasting exchange rates., INTRODUCTION The theory of purchasing power parity (PPP) states that the exchange rate between two currencies is related to the relative prices in the two countries so that exchange rate-adjusted [...]

PURCHASING POWER PARITY (PPP) is one of the most important conditions in international finance because many models of exchange-rate determination are built on the assumption that it holds.(1) The PPP [...]

This study tests the validity of ling-run PPP by applying the cointegration methodology of Johansen and Juselius (1990) to monthly exchange rate and price data for eleven countries. The results [...]

A study is conducted using models of marketing theory to analyze empowerment and purchasing power of consumers. The results of the study can be used to develop efficient marketing strategies.

Abstract It is a popular contention that products launched today diffuse faster than products launched in the past. However, the evidence of diffusion acceleration is rather scant, and the methodology [...]