Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments January 2012 erstellt
Description:
This study establishes a rigorous theory for the recent popular enhanced-Purchasing-Power-Parity model for estimating the long run equilibrium exchange rates of currencies. The necessary and sufficient conditions for the validity of the model are derived and proved. Based on the theory, this research takes into account the economic sizes of the countries along with the Balassa-Samuelson effect, and refines the Frankel-Rogoff specification. The refined model is applied to the data to estimate the under- or over-valuation of different currencies in the world. An empirical test to assess these estimation results further supports the validity of the model