LONG-RUN PURCHASING POWER PARITY DURING THE RECENT FLOAT

This paper examines the relevance of long-run purchasing power parity (PPP), which allows for measurement errors. during the recent floating exchange rate period. Previous empirical studies generally fail to find support for long-run PPP over this period. In this paper the cointegration property of exchange rates and prices is examined using a maximum likelihood procedure. and we find significant evidence favorable to long-run PPP. Further tests for symmetry and proportionality indicate that these two conditions are not generally consistent with the data. The results support the hypothesis of long-run PPP with measurement errors in prices.