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Another Look at the Null of Stationary RealExchange Rates. Panel Data with Structural Breaks and Cross-section Dependence

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  • Syed A. Basher

    (Department of Economics. York University.)

  • Josep Lluís Carrion-i-Silvestre

    ()
    (Faculty of Economics, University of Barcelona.)

Abstract

This paper re-examines the null of stationary of real exchange rate for a panel of seventeen OECD developed countries during the post-Bretton Woods era. Our analysis simultaneously considers both the presence of cross-section dependence and multiple structural breaks that have not received much attention in previous panel methods of long-run PPP. Empirical results indicate that there is little evidence in favor of PPP hypothesis when the analysis does not account for structural breaks. This conclusion is reversed when structural breaks are considered in computation of the panel statistics. We also compute point estimates of half-life separately for idiosyncratic and common factor components and find that it is always below one year.

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Bibliographic Info

Paper provided by University of Barcelona, Research Institute of Applied Economics in its series IREA Working Papers with number 200710.

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Length: 30 pages
Date of creation: May 2007
Date of revision: May 2007
Handle: RePEc:ira:wpaper:200710

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Postal: Tinent Coronel Valenzuela, Num 1-11 08034 Barcelona
Web page: http://www.ub.edu/irea/
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Related research

Keywords: Purchasing power parity; Half-lives; Panel unit roottests; Multiple structural breaks; Cross-section dependence.;

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References

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