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How Sure Are We about Purchasing Power Parity? Panel Evidence with the Null of Stationary Real Exchange Rates

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  • Kuo, Biing-Shen
  • Mikkola, Anne
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    Abstract

    This article presents evidence on mean reversion in industrial countries' real exchange rates in a setup that accounts naturally for cross-sectional dependence, is invariant to the benchmark currency and actually tests for the null of interest, i.e. purchasing power parity. Our results are based on the Kwiatkowski et al. (1992) test for the stationarity null generalized in a multivariate random walk plus noise model by Nyblom and Harvey (2000).

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    Bibliographic Info

    Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

    Volume (Year): 33 (2001)
    Issue (Month): 3 (August)
    Pages: 767-89

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    Handle: RePEc:mcb:jmoncb:v:33:y:2001:i:3:p:767-89

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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    Cited by:
    1. Catherine S. F. Ho & M. Ariff, 2009. "A Test of Purchasing Power Parity: Asia Pacific and Latin America," Asian Academy of Management Journal of Accounting and Finance, Penerbit Universiti Sains Malaysia, vol. 5(2), pages 33-53.
    2. Catherine S. F. Ho & M. Ariff, 2008. "The Role of Non-Parity Fundamentals in Exchange Rate Determination: Australia and the Asia Pacific Region," CARF F-Series CARF-F-125, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    3. Fischer, Christoph, 2004. "PPP: a Disaggregated View," Discussion Paper Series 1: Economic Studies 2004,07, Deutsche Bundesbank, Research Centre.
    4. Chien-Fu Chen & Chien-an Andy Wang & Chung-Hua Shen, 2007. "Does PPP hold for Big Mac price or consumer price index? Evidence from panel cointegration," Economics Bulletin, AccessEcon, vol. 6(16), pages 1-15.
    5. Clark, Todd E. & McCracken, Michael W., 2005. "The power of tests of predictive ability in the presence of structural breaks," Journal of Econometrics, Elsevier, vol. 124(1), pages 1-31, January.
    6. 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, vol. 30(8), pages 1619-1637.
    7. Wu, Jyh-Lin & Lee, Hsiu-Yun, 2009. "A revisit to the non-linear mean reversion of real exchange rates: Evidence from a series-specific non-linear panel unit-root test," Journal of Macroeconomics, Elsevier, vol. 31(4), pages 591-601, December.
    8. repec:ebl:ecbull:v:6:y:2007:i:16:p:1-15 is not listed on IDEAS
    9. Choi, Chi-Young, 2004. "Searching for evidence of long-run PPP from a post-Bretton Woods panel: separating the wheat from the chaff," Journal of International Money and Finance, Elsevier, vol. 23(7-8), pages 1159-1186.
    10. Ho, Catherine S.F. & Ariff, M., 2012. "Time to equilibrium in exchange rates: G-10 and Eastern European economies," Global Finance Journal, Elsevier, vol. 23(2), pages 94-107.
    11. Syed A. Basher & Josep LluĂ­s Carrion-i-Silvestre, 2007. "Another Look at the Null of Stationary RealExchange Rates. Panel Data with Structural Breaks and Cross-section Dependence," IREA Working Papers 200710, University of Barcelona, Research Institute of Applied Economics, revised May 2007.
    12. Jean-Francois Hoarau, 2010. "Does long-run purchasing power parity hold in Eastern and Southern African countries? Evidence from panel data stationary tests with multiple structural breaks," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 15(4), pages 307-315.

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