Home bias and purchasing power parity: evidence from the G-7 countries
AbstractRecent studies in the international economics literature emphasize the role of home bias in explaining a number of empirical puzzles. In the present study, we test for the following hypotheses: (i) that a home bias effect, which is nevertheless falling over time as traded goods markets become more integrated and consumption preferences become more similar across developed countries, influences the relationship among nominal exchange rates, domestic and foreign prices, and (ii) that incorporation of the home bias effect in the empirical specification of PPP enhances the robustness of the theory. We perform a panel data analysis using quarterly observations for the G-7 economies in the post-Bretton Woods era. The results confirm our hypotheses. Copyright © 2007 John Wiley & Sons, Ltd.
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Bibliographic InfoArticle provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.
Volume (Year): 13 (2008)
Issue (Month): 2 ()
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Web page: http://www.interscience.wiley.com/jpages/1076-9307/
Other versions of this item:
- Nikolaos Mylonidis & Dimitrios Sideris, 2007. "Home Bias and Purchasing Power Parity: Evidence from the G-7 Countries," Working Papers 59, Bank of Greece.
- F31 - International Economics - - International Finance - - - Foreign Exchange
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
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