High inflation countries show signs of purchasing power parity in new study.
The article examines exchange rates and wholesale prices in four high inflation countries to see if purchasing power parity holds true. Real exchange rates and price variables were tested for stability and relationships between them were analyzed. The results suggest that there is evidence supporting purchasing power parity in Argentina, Brazil, Chile, and Israel during the 1970s and 1980s. Error correction models were used to explain how the system adjusts to reach a long-term balance.