ASSESSING CONVERGENCE TO PURCHASING POWER PARITY - A PANEL STUDY FOR 10 OECD COUNTRIES

The paper analyzes whether post-Bretton Woods real exchange rates of t en OECD countries are nonstationary so that long-run purchasing power parity (PPP) can be considered to hold. A test procedure is proposed w hich treats the various real exchange rates as a panel but still allow s to assess the rate of convergence to PPP for each pair of currencies separately. It is shown that long-run (tradables-) PPP holds between all countries analyzed. Rates of convergence to PPP, however, are foun d to be quite different across countries. For most of the OECD countri es convergence takes place faster than previously indicated.