Purchasing Power Parity in the Long Run

19 Pages Posted: 7 Jan 2012

See all articles by Niso Abuaf

Niso Abuaf

Pace University - Lubin School of Business; Samuel A. Ramirez & Co., Inc.

Philippe Jorion

University of California, Irvine - Paul Merage School of Business

Date Written: 1990

Abstract

This paper re-examines the evidence on Purchasing Power Parity (PPP) in the long run. Previous studies have generally been unable to reject the hypothesis that the real exchange rate follows a random walk. If true, this implies that PPP does not hold. In contrast, this paper casts serious doubt on this random walk hypothesis. The results follow from more powerful estimation techniques, applied in a multilateral framework. Deviations from PPP, while substantial in the short run, appear to take about three years to be reduced in half

Suggested Citation

Abuaf, Niso and Jorion, Philippe, Purchasing Power Parity in the Long Run (1990). Journal of Finance, Vol. 45, No. 1, p. 157, March 1990, Pace University Finance Research Paper No. 2012/02, Available at SSRN: https://ssrn.com/abstract=1980918

Niso Abuaf (Contact Author)

Pace University - Lubin School of Business ( email )

1 Pace Plaza
New York, NY 10038-1502
United States

Samuel A. Ramirez & Co., Inc. ( email )

61 Broadway
New York, NY 10006
United States

Philippe Jorion

University of California, Irvine - Paul Merage School of Business ( email )

Campus Drive
Irvine, CA 92697-3125
United States
949-824-5245 (Phone)
949-824-8469 (Fax)

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