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New Multi-Country Evidence on Purchasing Power Parity: Multi-Variate Unit Root Test Results

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  • Jan J. J. Groen

    (Erasmus University Rotterdam)

Abstract

In this paper a likelihood-based multi-variate unit root testing framework is utilized to test whether the real exchange rates of G10 countries are non-stationary. The framework uses a likelihood ratio statistic which combines the information across all involved countries while retaining heterogeneous rates of mean reversion. This likelihood ratio statistic has an asymptotic distribution which can be typified as a summation of squared, univariate Dickey and Fuller (1979) distributions. Our multi-variate unit root tests indicate that bilateral G10 real exchange rates are stationary, irrespective of the numeraire country. On the other hand, the choice of the numeraire country seems to be of importance for the issue whether mean reversion rates across G10 real exchange rates are heterogeneous or homogeneous.

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0269.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:0269

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  1. Pierre Perron & Robert J. Shiller, 1984. "Testing the Random Walk Hypothesis: Power Versus Frequency of Observation," Cowles Foundation Discussion Papers 732, Cowles Foundation for Research in Economics, Yale University.
  2. Nielsen, B., 1995. "Bartlett Correction of the Unit Root test in Autoregressive Models," Economics Papers 98, Economics Group, Nuffield College, University of Oxford.
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  12. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
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  16. Coakley, Jerry & Fuertes, Ana Maria, 1997. "New panel unit root tests of PPP," Economics Letters, Elsevier, vol. 57(1), pages 17-22, November.
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Cited by:
  1. Haluk Erlat, 2009. "Persistence in Turkish Real Exchange Rates: Panel Approaches," FIW Working Paper series 029, FIW.

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