Testing long-run purchasing power parity under exchange rate targeting

Abstract

The present paper exploits the idea that empirical estimates of the long-run PPP relationship may compound two distinct influences coming from the behavior of market participants and policy makers when the latter are targeting the exchange rate. This tends to bias tests of longrun PPP against its acceptance. The validity of the theoretical arguments is assessed by drawing on the experience of two European Union countries, Greece and France, for the post-Bretton Woods period. Estimation biases due to the omission of policy effects are found to be significant only in the case of Greece. For France, our test results provide evidence bearing on the effectiveness of the competitive disinflation strategy pursued by the French authorities.

Bank-specific, industry-specific and macroeconomic determinants of bank profitability

“…15 In the first decade of the sample period, the Greek banking industry could be characterized as oligopolistic (Eichengreen and Gibson, 2001). About half of the sector's share belonged to the leading firm.…”

“…Similarly, in order to use the Lerner index, one has to effectively proxy bank output 15 Alternatively, the literature proposes a two-to five-firm concentration ratio involving the leading firms in the sector. For a review of concentration ratios and the H-H index, see Rhoades (1977).…”

The Contribution of Sectoral Productivity Differentials to Inflation in Greece

“…23 Finally, the BS model also assumes tradeable prices are determined internationally and that purchasing power parity holds. Evidence for the existence of PPP in the case of Greece is provided by Brissimis et al (1998Brissimis et al ( , 2005.…”

Does the Law of One Price Hold within the EU? A Panel Analysis

“…During the observation period most of the CEECs followed a managed float with significant interventions in the foreign exchange market. In the context of purchasing power parity, Brissimis et al (2005) argue that exchange rate targeting affects short-term adjustment processes in the real exchange rate and econometric tests can not reveal stationarity even if no unit root exists. Our results support this argument since the evidence for the LOOP is weaker in the NEW-10 than in the EU-15 pool.…”