How Sure are we About PPP Panel Evidence with the Null of Stationary Real Exchange Rates
AbstractThere has been serious suspicion of a spurious rejection of the unit roots in panel studies of PPP due to the failure to control cross-sectional dependence. This article presents evidence of mean-reversion in industrial country real exchange rates in a set up that accounts for cross-sectional dependence, is invariant to the benchmark currency and capable of detecting against regime changes, and actually tests for the null of interest, i.e. the purchasing power parity. Our results are based on a KPSS rest for the stationarity null generalized in multivariate random walk plus noise model by Nyblom and Harvey (1998).
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Bibliographic InfoPaper provided by Department of Economics in its series University of Helsinki, Department of Economics with number 451.
Length: 29 pages
Date of creation: 1999
Date of revision:
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Postal: University of Helsinki; Department of Economics, P.O.Box 54 (Unioninkatu 37) FIN-00014 Helsingin Yliopisto
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EXCHANGE RATE ; TIME SERIES ; ECONOMETRIC MODELS;
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- Kuo, Biing-Shen & Mikkola, Anne, 2000. "Forecasting the Real US/DEM Exchange Rate: TAR vs. AR," Research Discussion Papers 13/2000, Bank of Finland.
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