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Evidence of purchasing power parity for the floating regime period

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  • Lopez, Claude

Abstract

This paper investigates the PPP hypothesis within industrialized countries for the post-Bretton Woods period via two panel unit root tests, the DF-GLS-SUR and the ADF-SUR tests, respectively developed by Lopez (2003) and Levin, Lin and Chu (2002). Both approaches allow for data specific serial and contemporaneous correlation. The results lead to two major conclusions. First, by comparing the two test outcomes, we show the importance of the test power on PPP evidence. Then focusing on the results obtained via the DF-GLS-SUR test, we provide reliably strong evidence of PPP for the floating regime period.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 27 (2008)
Issue (Month): 1 (February)
Pages: 156-164

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Handle: RePEc:eee:jimfin:v:27:y:2008:i:1:p:156-164

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Web page: http://www.elsevier.com/locate/inca/30443

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References

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  1. Jeffrey A. Frankel & Andrew K. Rose, 1995. "A Panel Project on Purchasing Power Parity: Mean Reversion Within and Between Countries," NBER Working Papers 5006, National Bureau of Economic Research, Inc.
  2. MacDonald, Ronald, 1996. "Panel unit root tests and real exchange rates," Economics Letters, Elsevier, vol. 50(1), pages 7-11, January.
  3. Claude Lopez, 2005. "A Panel Unit Root Test with Good Power in Small Samples," University of Cincinnati, Economics Working Papers Series, University of Cincinnati, Department of Economics 2005-01, University of Cincinnati, Department of Economics, revised 2007.
  4. Claude Lopez, 2003. "An Improved Panel Unit Root Test Using GLS-Detrending," University of Cincinnati, Economics Working Papers Series, University of Cincinnati, Department of Economics 2003-06, University of Cincinnati, Department of Economics.
  5. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
  6. Claude Lopez & David H. Papell, 2003. "Convergence to Purchasing Power Parity at the Commencement of the Euro," Macroeconomics, EconWPA 0310008, EconWPA.
  7. Jorion, Philippe & Sweeney, Richard J., 1996. "Mean reversion in real exchange rates: evidence and implications for forecasting," Journal of International Money and Finance, Elsevier, Elsevier, vol. 15(4), pages 535-550, August.
  8. Oh, Keun-Yeob, 1996. "Purchasing power parity and unit root tests using panel data," Journal of International Money and Finance, Elsevier, Elsevier, vol. 15(3), pages 405-418, June.
  9. Hegwood, Natalie D & Papell, David H, 1998. "Quasi Purchasing Power Parity," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 3(4), pages 279-89, October.
  10. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
  11. Papell, David H., 1997. "Searching for stationarity: Purchasing power parity under the current float," Journal of International Economics, Elsevier, vol. 43(3-4), pages 313-332, November.
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Citations

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Cited by:
  1. Lopez, Claude & Papell, David H., 2012. "Convergence of Euro area inflation rates," Journal of International Money and Finance, Elsevier, Elsevier, vol. 31(6), pages 1440-1458.
  2. Jean-Christian Lambelet & Alexander Mihailov, 2005. "The Triple-Parity Law," Economics Discussion Papers, University of Essex, Department of Economics 604, University of Essex, Department of Economics.
  3. Xuguang Sheng & Lan Cheng, 2012. "Combination of "Combinations of P-values," Working Papers, American University, Department of Economics 2012-11, American University, Department of Economics.
  4. Cushman, David O. & Michael, Nils, 2011. "Nonlinear trends in real exchange rates: A panel unit root test approach," Journal of International Money and Finance, Elsevier, Elsevier, vol. 30(8), pages 1619-1637.
  5. Claude Lopez & Christian J. Murray & David H. Papell, 2003. "Median-Unbiased Estimation in DF-GLS Regressions and the PPP Puzzle," University of Cincinnati, Economics Working Papers Series, University of Cincinnati, Department of Economics 2003-07, University of Cincinnati, Department of Economics.
  6. Mark J. Holmes & Jesus Otero & Theodore Panagiotidis, 2011. "PPP in OECD countries: An analysis of real exchange rate stationarity, cross-sectional dependency and strucutral breaks," Discussion Paper Series 2011_17, Department of Economics, University of Macedonia, revised Nov 2011.
  7. Hassan Mohammadi & Mohammad Jahan-Parvar, 2012. "Oil prices and exchange rates in oil-exporting countries: evidence from TAR and M-TAR models," Journal of Economics and Finance, Springer, vol. 36(3), pages 766-779, July.
  8. Kanas, Angelos, 2006. "Purchasing Power Parity and Markov Regime Switching," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 38(6), pages 1669-1687, September.
  9. Lyócsa, Štefan & Výrost, Tomáš & Baumöhl, Eduard, 2011. "Unit-root and stationarity testing with empirical application on industrial production of CEE-4 countries," MPRA Paper 29648, University Library of Munich, Germany.

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