TY  - JOUR
AU  - Engel,Charles
AU  - Hendrickson,Michael K.
AU  - Rogers,John H.
TI  - Intra-National, Intra-Continental, and Intra-Planetary PPP
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6069
PY  - 1997
Y2  - June 1997
UR  - http://www.nber.org/papers/w6069
L1  - http://www.nber.org/papers/w6069.pdf
N1  - Author contact info:
Charles Engel
Department of Economics
University of Wisconsin
1180 Observatory Drive
Madison, WI  53706-1393
Tel: 608/262-3697
Fax: 608/262-2033
E-Mail: cengel@ssc.wisc.edu

John Rogers
Federal Reserve Board
International Finance Division
Mail Stop 20
Washington, DC 20551
Tel: 202/452-2873
Fax: 202/452-6424
E-Mail: JOHN.H.ROGERS@FRB.GOV
AB  - This paper builds a model of adjustment toward PPP for a panel of real exchange rates.  The model eliminates some inconsistencies in previous models, which implied a model for the real exchange rate of country B relative to country C that was not commensurate with the posited model of the real exchange rate for A relative to B, and A relative to C.  The model allows us to handle correlations across exchange rates in a panel in a natural way.  We put restrictions on an underlying model which yields a simple covariance matrix that can be easily estimated by GLS methods.  We also put restrictions on the underlying model which allow us to easily estimate a panel PPP model in which the speed of adjustment is not the same for all real exchange rates.  Our model, applied to the price levels of eight cities in four countries and two continents, does not find evidence in favor of reversion of PPP.
ER  -