Abstract
The purpose of this paper is to test the hypothesis of purchasing power parity. The basic methodology is to start by estimating a general distributed lag equation relating the excchangr rate to its own past and to current and past relative price levels. Successively more restricted version are then proposed and tested against the general model. Two interesting facts come out of this. One is that the Proportionality restrictin is not supported by the data and the other is that all the models estimated by Frenkel (1978) are rejected in favor of less restricted models.
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