Intra-National, Intra-Continental, and Intra-Planetary PPP

32 Pages Posted: 25 May 2006 Last revised: 6 Oct 2010

See all articles by Charles M. Engel

Charles M. Engel

University of Wisconsin - Madison - Department of Economics; National Bureau of Economic Research (NBER); University of Washington - Department of Economics

Michael K. Hendrickson

affiliation not provided to SSRN

John H. Rogers

Board of Governors of the Federal Reserve System - Trade and Financial Studies Section

Multiple version iconThere are 2 versions of this paper

Date Written: June 1997

Abstract

This paper builds a model of adjustment toward PPP for a panel of real exchange rates. The model eliminates some inconsistencies in previous models, which implied a model for the real exchange rate of country B relative to country C that was not commensurate with the posited model of the real exchange rate for A relative to B, and A relative to C. The model allows us to handle correlations across exchange rates in a panel in a natural way. We put restrictions on an underlying model which yields a simple covariance matrix that can be easily estimated by GLS methods. We also put restrictions on the underlying model which allow us to easily estimate a panel PPP model in which the speed of adjustment is not the same for all real exchange rates. Our model, applied to the price levels of eight cities in four countries and two continents, does not find evidence in favor of reversion of PPP.

Suggested Citation

Engel, Charles M. and Hendrickson, Michael K. and Rogers, John H., Intra-National, Intra-Continental, and Intra-Planetary PPP (June 1997). NBER Working Paper No. w6069. Available at SSRN: https://ssrn.com/abstract=226479

Charles M. Engel (Contact Author)

University of Wisconsin - Madison - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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University of Washington - Department of Economics ( email )

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Michael K. Hendrickson

affiliation not provided to SSRN

John H. Rogers

Board of Governors of the Federal Reserve System - Trade and Financial Studies Section ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States
202-452-2873 (Phone)
202-736-5638 (Fax)

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