Title: Purchasing power parity under fixed and flexible exchange rates
Abstract: The relationship between exchange rates and relative price levels in a sample of fourteen countries is studied for periods of fixed and of floating exchange rates. In comparing the deviations of the exchange rates from their purchasing power parity levels in the two cases it turns out that both the average size of the divergencies and their duration are smaller under the fixed rate period 1957–1966 than under the recent period of floating rates. The adjustable beg years of the late sixties fall in between. Evidence is also found which indicates a bias in purchasing power parity calculations using consumer price indexes, and the hypothesis that purchasing power parity relationships shifted as a result of changes in relative prices occuring at the end of 1973 cannot be rejected. The findings are related to the empirical literature on the international transmission of inflation and to recent comparisons of exchange rates and relative inflation rates.
Publication Year: 1978
Publication Date: 1978-05-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 132
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