Pelagatti, Matteo; Colombo, Emilio - Dipartimento di Statistica, Università degli Studi di … - 2012
In this paper we show by theoretical arguments that, even if the law of one price holds for all the goods traded in two countries, real exchange rates based on CPI are not mean-reverting and therefore statistical tests based on them should reject the PPP hypothesis. We prove that such real...