REVISITING THE PURCHASING POWER PARITY PRINCIPLE: AN EMPIRICAL ASSESSMENT FOR 163 ECONOMIES
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ABSTRACT
The paper examines the validity of the Purchasing Power Parity (PPP) principle, which dominates the discussion of Real Exchange Rates (RERs) and international trade policies. We employ a range of unit root tests on both time series and panel data to evaluate the stationarity properties of the real effective exchange rates for 163 economies grouped according to their level of development into developed, emerging, and low-income economies. For time series analysis, we use linear unit root tests with and without a structural break, and nonlinear unit root tests. To enhance the analysis, we additionally employ two first-generation panel unit root tests, as well as a second-generation unit root test. The empirical evidence aligns with the wide-ranging body of literature that discards the PPP as an effective analytical framework for explaining the behavior of RERs and for designing trade policy proposals.
REEVALUANDO LA PARIDAD DEL PODER ADQUISITIVO: EVIDENCIA EMPÍRICA PARA 163 ECONOMÍAS
RESUMEN
El presente estudio examina la validez empírica del principio de la paridad del poder adquisitivo (PPA), el cual constituye un marco teórico fundamental en el análisis de los tipos de cambio reales y las políticas comerciales internacionales. Se aplican diversas pruebas de raíz unitaria, tanto en series temporales como en datos de panel, para evaluar las propiedades de estacionariedad de los tipos de cambio reales efectivos de 163 economías, agrupadas según su nivel de desarrollo: desarrolladas, emergentes y de bajos ingresos. El análisis incluye pruebas lineales con y sin ruptura estructural, así como pruebas no lineales y de primera y segunda generación en panel. Los resultados empíricos coinciden con una amplia literatura que cuestiona la validez de la PPA, al mostrar escasa evidencia de estacionariedad en los tipos de cambio reales, particularmente en las economías desarrolladas, y un mayor grado de verificación en las economías de bajos ingresos.
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