PARITY REVERSION IN REAL EXCHANGE-RATES DURING THE POST-BRETTON WOODSPERIOD

A common view among recent studies on purchasing power parity is that the post-Bretton Woods period is far too short to reveal any significa nt parity reversion in individual series of real exchange rates. Is th is really so? The answer, this study shows, depends very much on the s tatistical test being used. Two efficient univariate unit-root tests a re applied to uncover parity reversion. These tests require much short er sample sizes than conventional tests to attain the same statistical power. Empirical results show that parity reversion can be unveiled o ver the modern float if an efficient unit-root test is applied. (C) 19 98 Elsevier Science Ltd. All rights reserved.