www.elsevier.nl/locate/econbase Purchasing power parity over two centuries?

This paper re-examines the purchasing power parity hypothesis for the dollar–sterling exchange rate using the two centuries of data from Lothian and Taylor (LT) (1996) [Real exchange rate behavior: the recent float from the perspective of the past two centuries. Journal of Political Economy 104 (3), 488–509]. Unlike LT, we conclude that the dollar–sterling RER is nonstationary, implying a rejection of the long-run PPP hypothesis. The differences in our conclusions are explained by: (1) sensitivity of ADF unit root tests to the choice of lag length, and/or (2) the presence of significant time trends in the ADF or Phillips–Perron unit root tes