Purchasing Power Parity and the European Single Currency: Some New Evidence
AbstractThe effect of the single currency on the Purchasing Power Parity (PPP) hypothesis is examined in this study for the 15 EU countries, vis a vis the US dollar, before and after the advent of the euro. Standard as well as nonlinear unit root tests are employed on the time series dimension. Unit root tests reject PPP and the highest half-lives are observed after the introduction of the single currency. Panel unit root (Pesaran, 2007) and stationarity tests (Hadri and Kurozumi, 2008) that take into account cross-sectional dependence are also estimated. The results remain inconclusive as panel stationarity tests fail to support PPP whereas panel unit root tests fail to reject PPP for the whole sample and for the period before the introduction of the single currency.
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Bibliographic InfoPaper provided by Koc University-TUSIAD Economic Research Forum in its series Koç University-TUSIAD Economic Research Forum Working Papers with number 1018.
Length: 23 pages
Date of creation: Jun 2010
Date of revision:
Purchasing Power Parity; half-life; nonlinear unit roots; panel unit roots; heterogeneity; cross-section dependence;
Other versions of this item:
- Christidou, Maria & Panagiotidis, Theodore, 2010. "Purchasing Power Parity and the European single currency: Some new evidence," Economic Modelling, Elsevier, vol. 27(5), pages 1116-1123, September.
- Maria Christidou & Theodore Panagiotidis, 2010. "Purchasing Power Parity and the European Single Currency: Some New Evidence," Working Paper Series 19_10, The Rimini Centre for Economic Analysis.
- Maria Christidou & Theodore Panagiotidis, 2010. "Purchasing Power Parity and the European Single Currency: Some New Evidence," Discussion Paper Series 2010_03, Department of Economics, University of Macedonia, revised Apr 2010.
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F3 - International Economics - - International Finance
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-06-18 (All new papers)
- NEP-EEC-2010-06-18 (European Economics)
- NEP-OPM-2010-06-18 (Open Economy Macroeconomic)
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