Empirical Evidence Of Purchasing Power Parity Theory

After the collapse of the Bretton Woods, the fiat money system causes the U.S. to r id itself of the constrnts of gold as the world’s leading reserve caiurrency, indicating the formation of a credit monetary system in dollars for the core. The difference is that, th e master of the USA on the world economy do not need to rely on economic strength, but by the dollar’s special status and its operation skills nowadays. As long as the U.S. dollar as an international reserve currency status not be thoroughly shaken, the United St ates can purchase lots of consumer goods and capital goods from around the world by c ontinuing to increase the supply of dollars. This constrained supply of dollars will not o nly cause the imbalance of the global economic structure resulting from the serious asym metry of international trade and international finance, but also lead significant impact to other countries’economic development, even bring the failure of national economic polic y in a considerable extent. Therefore, the establishment of a fair exchange rate formation mechanism is particularly important in the context of the credit monetary system.According to the logic of historical change,this paper investigates the gold parity of purchasing power parity theory after the collapse of the Bretton Woods system. In this p aper, the logical order as follows:First, seeking gold exchange rate. Second, by examining the three cointegration relati onship model, giving the corresponding conclusions, to calculate the deviation from pure hasing power parity rate. Finally, based on the conditions of purchasing power parity hoi ds, to calculate the deviation of nominal exchange rate and gold exchange rate from pur chasing power parity rate. In the end giving the reasons for the nominal exchange rate h as long been lower than the purchasing power parity exchange rate,the given gold excha nge rate and PPP exchange rates are equal. These conclusions are not only inspired us to j udge the evolution of the international monetary system, but also provided the basis for the in ternationalization process of the RMB.