Does Long‐run Purchasing‐power Parity Hold within the European Monetary System?

Abstract

Some recent research has reported results more favourable to long‐run purchasing‐power parity (PPP) for exchange rates within the European Monetary System (EMS) than for those outside it. This is inconsistent with the predictions of theories that regard the EMS as a means of acquiring anti‐inflation credibility for the governments of relatively high‐inflation countries. Results of tests on a wide range of intra‐EMS exchange rates suggest a tendency to under‐adjust for cumulative price differentials, and that the DM‐FF rate is atypical in its adherence to long‐run PPP.

Citation

Bleaney, M. (1992), "Does Long‐run Purchasing‐power Parity Hold within the European Monetary System?", Journal of Economic Studies, Vol. 19 No. 3. https://doi.org/10.1108/01443589210027293