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

32 Pages Posted: 17 Apr 1998  

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: September 1997

Abstract

This paper presents a general framework to address several issues that have arisen in recent work that investigates purchasing power parity (PPP) and other inter-regional relative price movements: (1) How can we model real exchange rate movements in a consistent manner, so that our model for the real exchange rate for country B relative to country C is commensurate with our models for country A/country B and country A/country C real exchange rates? For example, can things be modeled so that our tests do not depend on the "base country?" (2) How should we handle correlation across real exchange rates in panel tests of PPP? (3) Are speeds of adjustment toward PPP different for intra-national, cross-national and cross-continental real exchange rates? (4) Is the innovation variance different for intra-national, cross-national and cross-continental real exchange rates; and, if so, how does that influence how we model and test PPP?

JEL Classification: F30, F40

Suggested Citation

Engel, Charles M. and Hendrickson, Michael K. and Rogers, John H., Intra-National, Intra-Continental, and Intra-Planetary PPP (September 1997). Board of Governors of the Federal Reserve System International Finance Disc. Paper No. 589. Available at SSRN: https://ssrn.com/abstract=76928 or http://dx.doi.org/10.2139/ssrn.76928

Charles M. Engel (Contact Author)

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

1180 Observatory Drive
Madison, WI 53706
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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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