Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/19474
Authors: 
Fischer, Christoph
Year of Publication: 
2004
Series/Report no.: 
Discussion paper Series 1 / Volkswirtschaftliches Forschungszentrum der Deutschen Bundesbank 2004,07
Abstract: 
By disaggregating price indices, it becomes apparent that the real exchange rate consists of the real exchange rate for a single good and a weighted sum of relative prices between goods. When applying a battery of panel unit root tests to this sum and its components, it is found that both the sum and the relative prices are non-stationary. This implies that PPP is invalid even if the LOP holds for all goods. The findings contrast with the result from panel unit root tests that real exchange rates as a whole are stationary. Several suggestions for solving the conflict are discussed.
Subjects: 
purchasing power parity
real exchange rate
panel unit root tests
JEL: 
C33
F31
Document Type: 
Working Paper

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