TY  - JOUR
AU  - Darby,Michael R.
TI  - Does Purchasing Power Parity Work?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 607
PY  - 1980
Y2  - December 1980
UR  - http://www.nber.org/papers/w0607
L1  - http://www.nber.org/papers/w0607.pdf
N1  - Author contact info:
Michael R. Darby
John E. Anderson Graduate School of Management
University of California, Los Angeles
110 Westwood Plaza, Box 951481
Los Angeles, CA 90095-1481
Tel: 310/825-4180
Fax: 310/454-2748
E-Mail: michael.r.darby@anderson.ucla.edu
AB  - The logarithm of the purchasing power ratio (PPR) is shown for seven countries and three alternative price indices to follow a stationary and invertible process in the first differences. This means that permanent shifts in the parity value accumulate over time. Therefore, as the prediction interval lengthens, the variance of the level of the PPR goes towards infinity while the variance of its average growth rate goes to zero. Since the variance of the permanent shifts is substantial: (1) Harmonized money growth cannot maintain constant exchange rates; reserve flows feedback is required. (2) Economic explanations of the permanent shifts are an important research topic.
ER  -