On the purchasing power parity for Latin-American countries

Abstract

The purpose of this paper is to test the hypothesis of long-run purchasing power parity (PPP) for all Latin American countries. These countries share similar economic history and contagious effects from currency crises, which might lead to comovements in their real exchange rates. New time series unit root tests found evidence of PPP for the vast majority of countries. In the panel data framework, tests for the null of unit root, null of stationarity, and unit root under multiple structural breaks indicated stationary real exchange rates. Thus, there is convincing evidence that PPP holds for Latin-American countries in the post-1980 period.