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Purchasing Power Parity for Developing and Developed Countries: What Can We Learn from Non-Stationary Panel Data Models?

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  • Drine, Imed

    ()
    (University of Paris 1 Panthéon-Sorbonne)

  • Rault, Christophe

    ()
    (University of Orléans)

Abstract

The aim of this paper is to apply recently developed panel cointegration techniques proposed by Pedroni (1999, 2004) and generalized by Banerjee and Carrion-i-Silvestre (2006) to examine the robustness of the PPP concept for a sample of 80 developed and developing countries. We find that strong PPP is verified for OECD countries and weak PPP for MENA countries. However in African, Asian, Latin American and Central and Eastern European countries, PPP does not seem relevant to characterize the long-run behavior of the real exchange rate. Further investigations indicate that the nature of the exchange rate regime doesn’t condition the validity of PPP which is more easily accepted in countries with high than low inflation.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2887.

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Length: 42 pages
Date of creation: Jun 2007
Date of revision:
Publication status: published in: Journal of Economic Surveys, 2008, 22 (4), 752-773
Handle: RePEc:iza:izadps:dp2887

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Keywords: panel unit-root and cointegration tests; developing country; developed country; real exchange rate; purchasing power parity;

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References

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Citations

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Cited by:
  1. Su, Chi-Wei & Tsangyao, Chang & Chang, Hsu-Ling, 2011. "Purchasing power parity for fifteen Latin American countries: Stationary test with a Fourier function," International Review of Economics & Finance, Elsevier, Elsevier, vol. 20(4), pages 839-845, October.
  2. Sahbi Farhani & Sana Mrizak & Anissa Chaibi & Christophe Rault, 2014. "The environmental Kuznets curve and sustainability: A panel data analysis," Working Papers, Department of Research, Ipag Business School 2014-300, Department of Research, Ipag Business School.
  3. He, Huizhen & Chou, Ming Che & Chang, Tsangyao, 2014. "Purchasing power parity for 15 Latin American countries: Panel SURKSS test with a Fourier function," Economic Modelling, Elsevier, Elsevier, vol. 36(C), pages 37-43.
  4. Aoki, Takaaki, 2008. "One Proposition about Dynamic Portfolio Selection in an Open Economy and International Diversification," MPRA Paper, University Library of Munich, Germany 20563, University Library of Munich, Germany.
  5. Mohamed El Hedi Arouri & Adel Ben Youssef & Hatem M'Henni & Christophe Rault, 2014. "Energy Use and Economic Growth in Africa: A Panel Granger-Causality Investigation," CESifo Working Paper Series, CESifo Group Munich 4844, CESifo Group Munich.
  6. Diana Sadoveanu & Nicolae Ghiba, 2012. "Purchasing Power Parity: Evidence From Four Cee Countries," Journal of Academic Research in Economics, Spiru Haret University, Faculty of Accounting and Financial Management Constanta, Spiru Haret University, Faculty of Accounting and Financial Management Constanta, vol. 4(1 (March)), pages 80-89.
  7. Guglielmo Maria Caporale & Thouraya Hadj Amor & Christophe Rault, 2011. "Sources of Real Exchange Rate Volatility and International Financial Integration: A Dynamic GMM Panel Approach," CESifo Working Paper Series, CESifo Group Munich 3645, CESifo Group Munich.
  8. Abdullah Noman, 2008. "Testing for PPP in the mean-group panel rgression framework: further evidence," Economics Bulletin, AccessEcon, AccessEcon, vol. 6(20), pages 1-12.
  9. Noman, Abdullah, 2008. "Purchasing Power Parity in South Asia: A Panel Data Approach," MPRA Paper, University Library of Munich, Germany 7824, University Library of Munich, Germany.
  10. repec:ebl:ecbull:v:6:y:2008:i:20:p:1-12 is not listed on IDEAS
  11. Yutaka Kurihara, 2009. "Is Purchasing Power Parity Hypothesis Reasonable from the View of Trade Blocks and Currency Zones?," European Research Studies Journal, European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 3-14.

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