Real disturbances, relative prices and purchasing power parity

This article analyzes the effect of introducing structural breaks in calculating the convergence speed of relative prices for Brazilian cities in the period from 1991.01 to 2016.11. Three structural break dates were endogenously chosen (1996.02, 2001.12 and 2010.10) and they represent different situations of the Brazilian economy, with impacts on intra-national relative prices. The convergence speed, measured by the half-life, declined by approximately 77% after controlling for these structural changes. The result was robust to changes in numeraire both for calculation of the half-life and estimation of the structural break dates, and indicates the importance of considering structural breaks in calculating intra-national purchasing power parity, as found in other studies.

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A Fractional Cointegration Analysis of Purchasing Power Parity: Evidence of ELW

International Journal of Management and Sustainability ◽

10.18488/journal.11/2014.3.11/11.11.664.672 ◽

2015 ◽

Vol 3 (11) ◽

pp. 664-672

Author(s):

Nadhem Selmi

Keyword(s):

Purchasing Power Parity ◽

Weak Form ◽

The United States ◽

Cointegration Analysis ◽

Purchasing Power ◽

Power Parity ◽

Fractional Cointegration ◽

Relative Prices ◽

Long Run ◽

The Uk

This study examines the long-run relationship between exchange rates and relative prices. We use a long memory techniques that allow for persistence of chock relationships across real exchange rate to examine the existence of weak-form and strong-form Purchasing Power Parity (PPP) between the Tunisian and five partner countries of Tunisia, namely, (Germany, the United States, France, Italy, the UK, Morocco and Libya. The empirical results obtained through the R/S, Modified R/S, GPH and ELW tests; make us consider the PPP as an event in the long run if significant short-term deviations from the PPP cannot exist. Therefore, the analysis of the fractional cointegration makes the deviations, regarding equilibrium, follow a slightly integrated process and therefore capture a much wider group of research parity or mean-reverting behavior.

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Pricing-to-Market, Trade Costs, and International Relative Prices

The American Economic Review ◽

10.1257/aer.98.5.1998 ◽

2008 ◽

Vol 98 (5) ◽

pp. 1998-2031 ◽

Cited By ~ 296

Author(s):

Andrew Atkeson ◽

Ariel Burstein

Keyword(s):

International Trade ◽

Market Structure ◽

Purchasing Power Parity ◽

Imperfect Competition ◽

The United States ◽

Trade Costs ◽

Purchasing Power ◽

Power Parity ◽

Pricing To Market ◽

Relative Prices

International relative prices across industrialized countries show large and systematic deviations from relative purchasing power parity. We embed a model of imperfect competition and variable markups in a quantitative model of international trade. We find that when our model is parameterized to match salient features of the data on international trade and market structure in the United States, it can reproduce deviations from relative purchasing power parity similar to those observed in the data because firms choose to price-to-market. We then examine how pricing-to-market depends on the presence of international trade costs and various features of market structure. (JEL F12, F14, F31)

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