Long-Run Purchasing Power Parity: Is it for Real?

In this paper we re-examine the purchasing power concept using data from the recent experience with exchange rates. In particular, we utilise the recently multivariate cointegration methodology to test for long-run relationship between exchange rates and relative and also to test for the proportionality of the exchange with respect to relative prices. In contrast to much other , we demonstrate that there is a long-run relationship a number of bilateral U.S. dollar exchange rates and corresponding relative prices. The proportionality of the rate to relative prices does not, however, receive from the data. This finding may be attributable to the of measured price series rather than the "true" series.