The Factor Specificity and the Exchange Rate Theory of Purchasing Power Parity

The Factor Specificity and the Exchange Rate Theory of Purchasing Power Parity: An Extension of the Jones-Purvis Model

The focus of this paper is on the structural aspects of exchange rate determination, generalizing the 1983 Jones-Purvis model. Specifically the Jones-Purvis model is extend to incorporate the concept of factor specificity. It is shown that deviations from purchasing power parity depend on, among other determinants, factor specificity. Furthermore, it examines the factor specificity as a short-medium run determinant of the behavior of exchange rates, in a frame - work where two countries are affected by a common external shock. (JEL classification: F11, F31)

Ⅰ. Introduction

Ⅱ. The Model in a Simplified Economy

Ⅲ. Diversified Productive Structure in the “Input-tier”

Ⅳ. Diversified Productive Structure in the “Output-tier”

Ⅴ. Concluding Remarks

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