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Purchasing Power Parity For Developing And Developed Countries. What Can We Learn From Non-Stationary Panel Data Models?

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Author Info
Imed Drine
Christophe Rault

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Abstract

The aim of this paper is to apply recently developed panel cointegration techniques proposed by Pedroni (Oxford Bulletin of Economics and Statistics 61 (1999): Supplement, 653-670; Econometric Theory 20 (2004): 597-625) and generalized by Banerjee and Carrion-i-Silvestre (Working Paper 591, European Central Bank, February 2006) to examine the robustness of the PPP concept for a sample of 80 developed and developing countries. We find that strong PPP is verified for OECD countries and weak PPP for Middle East and North African countries. However, in African, Asian, Latin American and Central and Eastern European countries, PPP does not seem relevant to characterize the long-run behavior of the real exchange rate. Further investigations indicate that the nature of the exchange rate regime does not condition the validity of PPP, which is more easily accepted in countries with high rather than low inflation. Copyright © 2008 The Authors. Journal compilation © 2008 Blackwell Publishing Ltd.

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Article provided by Blackwell Publishing in its journal Journal of Economic Surveys.

Volume (Year): 22 (2008)
Issue (Month): 4 (09)
Pages: 752-773
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Handle: RePEc:bla:jecsur:v:22:y:2008:i:4:p:752-773

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Noman, Abdullah, 2008. "Testing for PPP in the Mean-Group Panel Regression Framework: Further Evidence," MPRA Paper 7825, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  2. Noman, Abdullah, 2008. "Purchasing Power Parity in South Asia: A Panel Data Approach," MPRA Paper 7824, University Library of Munich, Germany. [Downloadable!]
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