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Evidence of Purchasing Power Parity for the Floating Regime Period

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  • Claude Lopez

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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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File URL: ftp://repec.stlouisfed.org/pub/RePEc/cin/ucecwp/2004-01.pdf
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Bibliographic Info

Paper provided by University of Cincinnati, Department of Economics in its series University of Cincinnati, Economics Working Papers Series with number 2004-01.

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Length: 16 pages
Date of creation: May 2004
Date of revision: Mar 2006
Handle: RePEc:cin:ucecwp:2004-01

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  1. Claude Lopez, 2005. "A Panel Unit Root Test with Good Power in Small Samples," University of Cincinnati, Economics Working Papers Series 2005-01, University of Cincinnati, Department of Economics, revised 2007.
  2. Claude Lopez & David H. Papell, 2003. "Convergence to Purchasing Power Parity at the Commencement of the Euro," University of Cincinnati, Economics Working Papers Series 2003-08, University of Cincinnati, Department of Economics.
  3. Frankel, Jeffrey A & Rose, Andrew K, 1995. "A Panel Project on Purchasing Power Parity: Mean Reversion Within and Between Countries," CEPR Discussion Papers 1128, C.E.P.R. Discussion Papers.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. Oh, Keun-Yeob, 1996. "Purchasing power parity and unit root tests using panel data," Journal of International Money and Finance, Elsevier, vol. 15(3), pages 405-418, June.
  9. Jorion, Philippe & Sweeney, Richard J., 1996. "Mean reversion in real exchange rates: evidence and implications for forecasting," Journal of International Money and Finance, Elsevier, vol. 15(4), pages 535-550, August.
  10. MacDonald, Ronald, 1996. "Panel unit root tests and real exchange rates," Economics Letters, Elsevier, vol. 50(1), pages 7-11, January.
  11. Claude Lopez, 2003. "An Improved Panel Unit Root Test Using GLS-Detrending," Econometrics 0310003, EconWPA.
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Cited by:
  1. Mark J. Holmes & Jesús Otero & Theodore Panagiotidis, 2011. "PPP in OECD Countries: An Analysis of Real Exchange Rate Stationarity, cross-Sectional Dependency and Structural Breaks," Working Paper Series 51_11, The Rimini Centre for Economic Analysis.
  2. Claude Lopez & Christian J. Murray & David H. Papell, 2008. "Median-Unbiased Estimation in DF-GLS Regressions and the PPP Puzzle," University of Cincinnati, Economics Working Papers Series 2008-05, University of Cincinnati, Department of Economics, revised 2008.
  3. 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.
  4. Kanas, Angelos, 2006. "Purchasing Power Parity and Markov Regime Switching," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(6), pages 1669-1687, September.
  5. Xuguang Sheng & Lan Cheng, 2012. "Combination of "Combinations of P-values," Working Papers 2012-11, American University, Department of Economics.
  6. 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.
  7. Jean-Christian Lambelet & Alexander Mihailov, 2006. "The Triple-Parity Law," Computing in Economics and Finance 2006 33, Society for Computational Economics.
  8. Lopez, C. & Papell, David H., 2011. "Convergence of Euro Area Inflation Rates," Working papers 326, Banque de France.
  9. 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.

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