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| Author: | O'Connell, P. |
| Title: | Market frictions and real exchange rates |
| Journal: | Journal of International Money and Finance
1998 : FEB, VOL. 17:1, p. 71-96 |
| Index terms: | EXCHANGE RATES MARKETS FINANCE |
| Language: | eng |
| Abstract: | One explanation for the failure of purchase power parity (PPP) is that market frictions impede trade, allowing departures from PPP to grow quite large without precipitating goods arbitrage. If this explanation is correct, then other things equal, large deviations from PPP should be less persistent than small differences. This paper examines this prediction over the modern floating-rate era. The exceptions are for some intra-EC real exchange rates. |
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