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A long memory panel unit root test: PPP revisited

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  • Andersson, Jonas

    (Department of Statistics)

  • Lyhagen, Johan

    ()
    (Dept. of Economic Statistics, Stockholm School of Economics)

Abstract

In this paper two techniques, long memory and panel data models, are combined in order to increase the power of unit root tests. The power is shown to be always better against fractional alternatives and usually against autoregressive alternatives. The test is then used to reanalyze data sets investigated by Cheung and Lai (1993), Oh (1996) and Papell (1997) who studied the purchasing power parity. In some cases, the test rejected the hypothesis of no cointegration between foreign and domestic prices where the other authors tests did not.

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Bibliographic Info

Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 303.

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Length: 14 pages
Date of creation: 12 Feb 1999
Date of revision:
Handle: RePEc:hhs:hastef:0303

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Related research

Keywords: Unit root; Long memory; Purchasing power parity;

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Cited by:
  1. Kristian Jönsson, 2005. "Cross-sectional Dependency and Size Distortion in a Small-sample Homogeneous Panel Data Unit Root Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(3), pages 369-392, 06.
  2. Badi H. Baltagi & Chihwa Kao, 2000. "Nonstationary Panels, Cointegration in Panels and Dynamic Panels: A Survey," Center for Policy Research Working Papers 16, Center for Policy Research, Maxwell School, Syracuse University.

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