Purchasing Power Parity in Developing Countries

10 Pages Posted: 7 Feb 2017

See all articles by Leonardo Cruz Basso

Leonardo Cruz Basso

Mackenzie Presbyterian University - Business Administration

Helene Rebelo

Mackenzie Presbyterian University

Eli Júnior

Mackenzie Presbyterian University

Date Written: February 3, 2017

Abstract

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.

Keywords: Purchasing Power Parity, Developing Countries, price index, exchange rate theory

JEL Classification: F31, F37, F41, E31

Suggested Citation

Cruz Basso, Leonardo and Rebelo, Helene and Júnior, Eli, Purchasing Power Parity in Developing Countries (February 3, 2017). Available at SSRN: https://ssrn.com/abstract=2911046 or http://dx.doi.org/10.2139/ssrn.2911046

Leonardo Cruz Basso (Contact Author)

Mackenzie Presbyterian University - Business Administration ( email )

Rua da Consolacao, 896 7 - andar sala 73
01302-907 Sao Paulo
Brazil
+55 11 32368597 (Phone)
+55 11 32368600 (Fax)

Helene Rebelo

Mackenzie Presbyterian University ( email )

Rua da Consolação 920
São Paulo, 010302907
Brazil
55-11-2114-8268 (Phone)

HOME PAGE: http://www.mackenzie.br

Eli Júnior

Mackenzie Presbyterian University ( email )

Rua da Consolação 920
São Paulo, 010302907
Brazil

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