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The Purchasing Power Parity Criterion for Stabilizing Exchange Rates
Author:
International Monetary Fund
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Series:
IMF Working Papers
Volume/Issue:
Volume 1989: Issue 052
Language:
English
Publication Date:
01 Jan 1989
DOI:
https://doi.org/10.5089/9781451970166.001
ISBN:
9781451970166
ISSN:
1018-5941
Pages:
48
Keywords:
WP; nominal exchange rate; floating exchange rate; base year; international monetary system; PPP exchange rate; PPP estimate; PPP doctrine; PPP criterion; dollar path; exchange rate target; dollar rate; Exchange rates; Purchasing power parity; Exchange rate arrangements; Floating exchange rates; Labor costs; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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The use of purchasing power parity as a basis of fixing exchange rates among industrial countries, as proposed by McKinnon, is discussed and contrasted with alternative interpretations of the PPP doctrine. Major policy implications of such a regime are emphasized. Furthermore, a new technique for estimating PPP exchange rates which makes use of price pressure exerted by exchange deviation is introduced. This method is capable of solving the “base-year” problem more satisfactorily than the traditional Cassel-Keynes methodology. Estimated yen/dollar and mark/dollar PPP exchange rates are close to estimates derived using other methods.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund