Speed of Reversion of Deviations of the Purchasing Power Parity for Brazilian Cities

• Main Authors: Felipe de Sousa Bastos, Roberto Tatiwa Ferreira, Elano Ferreira Arruda
• Format: Article
• Language: English
• Published: Fundação Getúlio Vargas
• Series: Revista Brasileira de Economia
• Subjects: Purchasing Power Parity; Speed of Reversion; Nickell Bias; Temporal Aggregation Bias
• Online Access: http://www.scielo.br/scielo.php?script=sci_arttext&pid=S0034-71402018000100026&lng=en&tlng=en

This study estimates the rate of reversion of deviations from the PPP for Brazilian cities considering three possible sources of bias: i) Nickell, ii) the heterogeneity of the autoregressive coefficients, and iii) generated by the temporal aggregation of price indices. The values of the estimated half-lives were approximately 4.41 and 3.18 years when considering the price index of Brazil and the average of the indices of cities as references, respectively. When using the price index for each city as the numeraire, the median half-life is 3.13 years.