Testing Purchasing Power Parity:

We defined the purchasing power parity (PPP) in the scenario of Pakistan and India as a long term unit elasticity of exchange rate and compared it with relative national prices. The characteristic of finite sample are analyzed through time series regression analysis. It allows the cross sectional dependency, country heterogeneity and non stationary disorder. Because the devia of 43 years. The past studies have showed that data was collected on the basis decades, like some of the researcher data contained on 08, 35 and 55 years. Additionally using the t observed the structural changes over a long term period. In this study, result identifies that the real exchange rate of India and Pakistan are not constant. The practical evidence shows that long run PPP holds for the sam countries