Purchasing power parity and structural instability in the US/UK exchange rate

M. Karoglou, Bruce Morley

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The aim of this study is to determine if nonlinearities have affected purchasing power parity (PPP) since 1885. Also using recent advances in the econometrics of structural change we segment the sample space according to the identified breaks and look at whether the PPP condition holds in each sub-sample and whether this involves linear or non-linear adjustment. Our results suggest that during some sub-periods, PPP holds, although whether it holds or not and whether the adjustment is linear or non-linear, depends primarily on the type of exchange rate regime in operation at any point in time.
Original languageEnglish
Pages (from-to)958-972
Number of pages15
JournalJournal of International Financial Markets, Institutions and Money
Issue number4
Early online date18 May 2012
Publication statusPublished - Oct 2012


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