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How Sure are we About PPP Panel Evidence with the Null of Stationary Real Exchange Rates

Author

Listed:
  • Kuo, B.-S.
  • Mikkola, A.

Abstract

There 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).

Suggested Citation

  • Kuo, B.-S. & Mikkola, A., 1999. "How Sure are we About PPP Panel Evidence with the Null of Stationary Real Exchange Rates," University of Helsinki, Department of Economics 451, Department of Economics.
    • Handle: RePEc:fth:helsec:451
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    Cited by:

    1. David E. Rapach, 2002. "Are Real GDP Levels Nonstationary? Evidence from Panel Data Tests," Southern Economic Journal, John Wiley & Sons, vol. 68(3), pages 473-495, January.

    More about this item

    Keywords

    EXCHANGE RATE ; TIME SERIES ; ECONOMETRIC MODELS;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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