On the Purchasing Power Parity for Latin-American Countries

Abstract

This paper tests the hypothesis of long-run purchasing power parity (PPP) for all Latin American countries. Those countries share characteristics as high inflation, nominal shocks, and trade openness which might have led to quicker adjustment in relative prices and contributed for PPP to hold. New time series unit root tests give evidence of stationary real exchange rates for the vast majority of countries. In the panel data framework, tests for the null of unit root, null of stationarity, and unit root under multiple structural breaks indicate that the pooled real exchange rate is stationary. Thus, the results provide convincing evidence that PPP holds in Latin-America in the post-1980 period.

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