Deviations from purchasing power parity under different exchange rate regimes: Do they revert and, if so, how?

2006 ◽  
Vol 30 (11) ◽  
pp. 3147-3169 ◽  
Author(s):  
Lucio Sarno ◽  
Giorgio Valente
Keyword(s):  
Exchange Rate ◽  
Purchasing Power Parity ◽  
Exchange Rate Regimes ◽  
Purchasing Power ◽  
Power Parity

scholarly journals Market Efficiency and Long Run Purchasing Power Parity Disequilibria of the Mexican Peso Under Changing Exchange Rate Regimes

2004 ◽  
Author(s):  
Alejandra Cabello ◽  
Edgar Iván Ortiz ◽  
Robert I. Johnson
Keyword(s):  
Exchange Rate ◽  
Market Efficiency ◽  
Purchasing Power Parity ◽  
Inflation Targeting ◽  
Structural Changes ◽  
Exchange Rate Regimes ◽  
Purchasing Power ◽  
Power Parity ◽  
Macroeconomic Policies ◽  
Long Run

This paper tests if the efficient market version of Purchasing Power Parity (EMPPP) holds for the Mexican case for the 1970-2002 period in an environment of changing exchange rate regimes. Two regression analyses which extend PPP to a dynamic intertemporal model, based on market efficiency, are used, and in addition two unit root tests are applied. In general, the obtained empirical evidence does not support the EMPPP. Results suggest an inefficient market resulting from weak exchange rate policies and weak adoptions of several exchange rate regimes without proper inflation targeting and the application of strong and disciplined macroeconomic policies and structural changes.  

scholarly journals Exchange Rate Appreciation, International Competitiveness And Purchasing Power Parity: The Shiomi Company Of Japan

2016 ◽  
Vol 12 (3) ◽  
pp. 135-144
Author(s):  
John F. Boschen
Keyword(s):  
Exchange Rate ◽  
Purchasing Power Parity ◽  
Financial Management ◽  
Nominal Exchange Rate ◽  
Purchasing Power ◽  
Power Parity ◽  
Consumer Prices ◽  
The Us ◽  
Cost Competitiveness ◽  
International Financial Management

In 2011 the ongoing appreciation in the yen against the US$ led Japanese firm Shiomi to consider relocating its production facilities outside of Japan. As a prelude to making this decision, Shiomi commissioned an evaluation of the historical impact of the yen’s appreciation on Japanese competitiveness. This evaluation is the basis for two important lessons in international financial management.  First, it is the real exchange rate, rather than the nominal exchange rate, that determines the relative cost competitiveness of countries. Second, in accordance with the rules of purchasing power parity, the historical evaluation showed that higher inflation in the U.S. relative to Japan caused the ratio of Japanese to U.S. prices to fall at roughly the same rate as the yen’s appreciation against the US$. Thus the long-term appreciation in the yen had little impact on Japanese competitiveness. Students are asked to assess the relocation decision in light of the post-case data on exchange rates and consumer prices supplied in the case. The case is appropriate for use in an international financial management or international economics course.

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