Abstract

ORTIZ, Edgar; CABELLO, Alejandra; JESUS, Raúl de  and  JOHNSON, Robert. Exchange rates, market efficiency and purchasing power parity: Long-run tests for the Latin American currencies. Prob. Des [online]. 2005, vol.36, n.141, pp.85-108. ISSN 0301-7036.

In efficient markets current prices reflect all available information. Past prices do not contain any useful information for predicting future prices or for realizing extraordinary gains. This principle, known as the weak hypothesis of informational market efficiency, has been incorporated into Purchasing Power Parity (PPP) theory to overcome its limitations in the intertemporal analysis of exchange rate adjustments to inflationary trends. Overall, recent studies dealing with exchange rates from developed countries validate their efficiency. Research for the case of developing economies is rather limited. The present study analyzes empirically the efficiency of the exchange rates markets from 15 Latin American Countries for the period 1970-2000. Based on the enhanced PPP model, two regression analyses and a unit root test are applied.

Keywords : exchange rates; efficient markets; purchasing power parity; Latin America.

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