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The Purchasing Power Parity Fallacy: Time to Reconsider the PPP Hypothesis

dc.contributor.authorEleftheriou, Maria
dc.contributor.authorMueller-Plantenberg, Nikolas A.
dc.date.accessioned2024-02-09T10:20:38Z
dc.date.available2024-02-09T10:20:38Z
dc.date.issued2018
dc.identifier.citationEleftheriou, M., & Müller-Plantenberg, N. A. (2018). The purchasing power parity fallacy: Time to reconsider the PPP hypothesis. Open Economies Review, 29, 481-515.es
dc.identifier.issnElectronic ISSN 1573-708X
dc.identifier.issnPrint ISSN 0923-7992
dc.identifier.urihttps://hdl.handle.net/10115/30227
dc.description.abstractTraded good prices affect the real exchange rate first through their effect on the overall price level and second through their effect on the nominal exchange rate. Whereas the price level effect, which is positive in sign, is universally recognized, the nominal exchange rate effect, which is negative in sign, is routinely ignored. We calculate to which extent real exchange rate changes are accounted for by traded good prices and other components of the real exchange rate. We find that the nominal exchange rate effect neutralizes the price level effect entirely, suggesting that, contrary to popular belief, good market arbitrage is not conducive to purchasing power parity (the purchasing power parity fallacy). Rather than traded or non-traded good prices, the main driving force behind the real exchange rate is currency market pressure, a variable that, as we argue, is largely determined by the cumulative trade and capital flows of a country.es
dc.language.isoenges
dc.publisherSpringer Science+Business Mediaes
dc.subjectReal exchange rate accountinges
dc.subjectGood market arbitragees
dc.subjectPurchasing power parity fallacyes
dc.subjectCurrency market pressurees
dc.titleThe Purchasing Power Parity Fallacy: Time to Reconsider the PPP Hypothesises
dc.typeinfo:eu-repo/semantics/articlees
dc.identifier.doi10.1007/s11079-017-9473-9es
dc.rights.accessRightsinfo:eu-repo/semantics/restrictedAccesses


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