Adjusting toward Long-run Purchasing Power Parity

Venue :Online Seminars
Host Name :The SEACEN Centre
Date From :01 Mar 2023
Date To :01 Mar 2023


Purchasing power parity (PPP) affects the exchange rate in the long run through trade and the short run through expectation in uncovered interest parity. Statistical tests struggle to detect if PPP holds over short-span data because real exchange rates are persistent. We address the limitations and test whether PPP holds in the long run. We use the ‘system pooled mean group’ (SPMG) approach on 16 advanced economies over 148 years. We detect consensus for PPP—and stronger evidence when we consider exchange rate regimes—because we pool the long-run and allow for two-way causality in long-span data.

Speaker: Kian Ong Howe, Assistant Professor in Economics, Business School, University of Nottingham Ningbo China