The validity of purchasing power parity over the last century
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2007
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Abstract
This thesis tests the validity of purchasing power parity (PPP), a theory which summarizes the equilibrium relationship between the exchange rate and relative price levels. In general, previous studies have not found support for PPP in the short run, yet mixed results occurred when PPP was tested over long time periods. This thesis examines the behavior of real exchange rates for a group of 23 OECD countries over 100 years. For the first time, Rescaled Range Analysis, which consists of the Hurst exponent and the modified R/S statistic, is employed to detect the long memory in real exchange rate series. Overall, the results do not provide evidence of stationarity or long memory in real exchange rates, which leads to the rejection of PPP. To ensure the robustness of the results, conventional unit root and stationarity tests were applied, with the same disappointing results.
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Bibliography: p. 64-73
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Hyrina, Y. (2007). The validity of purchasing power parity over the last century (Master's thesis, University of Calgary, Calgary, Canada). Retrieved from https://prism.ucalgary.ca. doi:10.11575/PRISM/1689