The exchange rate and purchasing power parity in arbitrage-free models of asset pricing.

Exchange; Purchasing; Purchasing power; Power; Models; Model; Asset pricing; Pricing;

Violating purchasing power parity.

This paper demonstrates that deviations from the law of one price are an important source of violations of absolute PPP across countries. Using highly disaggregated U.S. export data, we document evidence of systematic international price discrimination based on the local wage of consumers in the destination market. We show that most violations from absolute PPP can also be explained by international differences in wages. We find very little additional explanation is due to differences in income per capita. Developing and calibrating a model of pricing-to-market based on search frictions and international productivity differences, we show that pricing-to-market accounts for 62 percent of the relationship between national price levels and income and 100 percent of the deviation from the law of one price. In contrast, the textbook Harrod-Balassa-Samuelson effect accounts for the remaining 38 percent of the relationship between national price levels and income.Purchasing power parity

The Big Mac Standard: A Statistical Illustration

We demonstrate a statistical procedure for selecting the most suitable empirical model to test an economic theory, using the example of the test for purchasing power parity based on the Big Mac Index. Our results show that supporting evidence for purchasing power parity, conditional on the Balassa-Samuelson effect, depends crucially on the selection of models, sample periods and economies used for estimations.Big Mac Index, Purchasing Power Parity, Panel Data

Utility based regional purchasing power parities

Calculation of purchasing power parities based on observed consumer behaviour typically relies on the existence of some kind of 'international preferences'. We argue that this unrealistic assumption can be abandoned in 'regional' studies of purchasing power, where prices in both territories under study might differ only slightly. Drawing on recent results for the derivation of equivalence scales, we develop a model of regional purchasing power and discuss several procedures for testing model specification. The model is applied to data of the German Income and Expenditure Survey 1998 to estimate the wedge between purchasing power in the western and eastern part of Germany. --

Purchasing power parity in OECD countries: nonlinear unit root tests revisited

The aim of this paper is to provide additional evidence on the purchasing power parity empirical fulfillment in a pool of OECD countries. We apply the Harvey et al. (2008) linearity test and the Kruse (2010) nonlinear unit root test. The results point to the fact that the purchasing power parity theory holds in a greater number of countries than has been reported in previous studies.Real exchange rates, purchasing power parity, nonlinearities, unit root tests

Purchasing Power Parity and the Fractional Integration of the Real Exchange Rate: New Evidence for Less Developed Countries

This study tests for relative purchasing power parity for a sample of thirty less developed countries. The empirical analysis is based on testing for the fractional integration of real exchange rates. Using quarterly data covering the period 1973-2001, there is evidence against purchasing power parity for the vast majority of less developed countries using ADF unit root tests. However, we find that the real exchange rates of upto eight countries are fractionally integrated thereby suggesting that mean-reversion is by no means a rare phenomenon. There is mixed evidence that purchasing power parity is restricted to high inflation less developed countries.

The purchasing power parity doctrine

An abstract for this article is not availableForeign exchange ; Equilibrium (Economics)

Purchasing Power Parity and Interest Parity in the Laboratory,

This paper analyzes purchasing power parity and uncovered interest parity in the laboratory. It finds strong evidence that purchasing power parity, covered interest parity, and uncovered interest parity hold. Subjects are endowed with an intrinsically useless (green) currency that can be used to purchase another useless (red) currency. Green goods can be bought only with green currency, and red goods can be bought only with red currency. The foreign exchange markets are organized as call markets. In the treatment analyzing purchasing power parity, the price of the red good varies. In a second treatment, the interest rate on red currency varies. In a third treatment, the interest rate on red currency varies, and the price of the red good is random.

Purchasing Power, Fruits Vegetables Consumption, Nutrition Status Among Elementary School Student

Food purchasing power is usually defined as a household\u27s economic ability to obtain food which is determined by measuring the income allocated for food purchase, the price of food consumed, and the number of family members. More than 50% of the sub-districts in South Central Timor are vulnerable to food consumption due to their low purchasing power, thus causing low fruits and vegetables consumption. To analyze the correlation between purchasing power, fruits and vegetables consumption, with nutrition status of elementary school students. Analytic observational using a cross sectional design. Sample size of 108 students was achieved using simple random sampling method. Independent variables are purchasing power, fruits and vegetables consumption. Dependent variable is nutrition status. Fruits and vegetables consumption data was collected using food frequency, purchasing power data was collected using questionnaires, and nutrition status was collected by calculating IMT/U. The statistics tests used were chi square test. The mean number of fruits and vegetables consumption of the elementary students was 0,36±0,483 and the mean number of purchasing power was 2,80±0,405. Bivariate study test results show a significant correlation between purchasing power and nutrition status (p=0,039) and a significant correlation between fruits and vegetables consumption and nutrition status (p=0,000). There is a correlation between purchasing power, fruits and vegetables consumption, and nutrition status in elementary school students

International pricing in new open-economy models

Prices ; Purchasing power parity