RELATIVE PARITY IN PURCHASING POWER: AN EMPIRICAL ANALYSIS

Abstract

The objective of this paper is to test the validity of the relative version of the Purchase Power Parity for the Brazilian economy. The exchange rate real (real for American north dollar), price indexes for wholesale of Brazil and price indexes to the producer of the United States were the variables used in the paper. The data were collected in the period of January from 1990 to December of 2004 with monthly periodicity. The used methodologies were the tests of unitary roots known as Dickey-Fuller (DF) and Amplified Dickey-Fuller (ADF) and also the cointegration test developed by Engle and Granger with a significance level of 1% and 5%. The obtained results after econometric estimate doesn’t confirm the validity of theory of the Purchase Power Parity to Brazil in the period considered because of the cointegration absence among the studied variables what assures that for the analyzed period the tested theory ins not valid to explain the changes in the exchange rates real in the long run. Besides, the obtained results in this paper does accord the works developed by Zini and Cati (1993) and else authors.