Using data from 76 countries, this paper investigates the relationship between country
characteristics and the validity of purchasing power parity (PPP). Several interesting results are
obtained based on dollar-based exchange rates. First, PPP holds for Africa and Latin America.
Further, PPP tends to be supported for countries with high or moderate openness, low growth
rates, high inflation rates and high nominal exchange rate volatility, respectively. Second, a
single country characteristic seems inadequate to account for the validity of PPP. Third, PPP is
supported if countries satisfy at least two characteristics of supporting PPP simultaneously.
Finally, the main results of the paper are robust when the numeraire currency changes from the
US dollar to Japanese yen.
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