Purchasing Power Parity: Doctrinal Perspective and Evidence from the 1920s

23 Pages Posted: 28 Jun 2004

See all articles by Jacob A. Frenkel

Jacob A. Frenkel

Merrill Lynch & Co. - Sovereign Advisory Group and Global Financial Institutions Group; National Bureau of Economic Research (NBER)

Date Written: April 1979

Abstract

The first part of the paper traces the doctrinal origins of the purchasing power parity (PPP) doctrine and reviews the central issues of controversy. The second part is an empirical study covering the flexible exchange rates period of the 1920s. The empirical work examines the efficiency of foreign exchange markets, the absolute and the relative versions of PPP for alternative price indices, the homogeneity postulate, the relation between the short run and the long run, and the patterns of 'causality' between prices and exchange rates. The paper concludes with estimations of price equations and a discussion of the proper specification of PPP.

Suggested Citation

Frenkel, Jacob A., Purchasing Power Parity: Doctrinal Perspective and Evidence from the 1920s (April 1979). NBER Working Paper No. R0004. Available at SSRN: https://ssrn.com/abstract=275349

Jacob A. Frenkel (Contact Author)

Merrill Lynch & Co. - Sovereign Advisory Group and Global Financial Institutions Group

New York, NY
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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