Purchasing power parity in Latin America: a co-integration analysis

The latest techniques in econometrics are used to test the Purchasing Power Parity (PPP), particularly the claim thatit works in countries with high inflation. Touted as one of the most controversial hypotheses in economics, PPP declares that the exchange rate between two currencies is determined, in equilibrium, by the relative price of the two countries. The study produced mixed results, depending on how the hypothesis is interpreted. However, it is concluded that PPP is accepted, at least, for Latin American countries which have had high inflation rates in the last several decades.