ABSTRACT
Manzur (1990) introduces a new methodology based on Divisia index numbers to test the purchasing power parity (PPP) hypothesis for all major currencies simultaneously. His results indicate that during the recent period of floating rates (i) PPP holds quite well as a long-run phenomenon; (ii) PPP does not hold in the short run; and (iii) the long run in so far as PPP is concerned is about five years. In this chapter we apply the methodology to the flexible exchange rate experience of the 1920s. A comparison of the 1920s and the recent float allows us to analyze whether (economic) time has slowed down in terms of the speed of adjustment to the long run.
