Purchasing Power Parity in the Long Run: A Test of the Dollar/Pound Exchange Rate (1890-1978)

Hali J. Edison

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Abstract

This paper tests the Purchasing Power Parity (PPP) hypothesis by analyzing t he long-run tendency of the dollar/pound exchange rate using data sin ce 1890. Two different models are considered: (1) a na ive model and (2) a modified monetary model. The conditions of propor tionality and symmetry cannot be rejected when using the naive model. The final results using the monetary model, however, indicate that t he existence of permanent deviations from PPP cannot be ruled out. Copyright 1987 by Ohio State University Press.

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References

1976Expectations and Exchange Rate Dynamics 1964The Purchasing-Power Parity Doctrine: A Reappraisal 1978Econometric Modelling of the Aggregate Time-Series Relationship Between Consumers' Expenditure and Income in the United Kingdom 1977A Monetary Approach To The Exchange Rate: Doctrinal Aspects And Empirical Evidence 1977The monetary approach to the balance of payments 1983Deviations from Purchasing Power Parity in the Long Run n.d.International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics 1976The Purchasing-Power-Parity Theory of Exchange Rates: A Review Article (Theorie de la parite des pouvoirs d'achat des taux de change: une etude) (La teoria de los tipos de cambio basados en la paridad del poder adquisitivo: Articulo de repaso)

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1999Testing the random walk hypothesis for real exchange rates 2003Purchasing Power Parity 1997Multi-country evidence on the behavior of purchasing power parity under the current float 1991ON ERROR CORRECTION MODELS: SPECIFICATION, INTERPRETATION, ESTIMATION 1996

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