INCREASING EVIDENCE OF PURCHASING POWER PARITY OVER THE CURRENT FLOAT

We conduct unit root tests of real exchange rates with the United Stat es dollar and the German mark as base currencies. Using samples of dat a which begin in 1973 and end between 1982 and 1996, we find that, as the sample is extended, the evidence of PPP strengthens with panel, bu t not univariate, methods. Because of the sharp rise and fail of the d ollar in the early 1980s, rejections of the unit root null do not mono tonically increase with the sample size. The evidence of PPP is unifor mly stronger when the mark is used as the base currency. (C) 1998 Else vier Science Ltd. All rights reserved.