Unbiased Estimation of the Half-Life to PPP Convergence in Panel Data
AbstractThree potential sources of bias present complications for estimating the half-life of purchasing power parity deviations from panel data. They are the bias associated with inapproiate aggregation across heterogeneous coefficients, time aggregation of commodity prices, and downward bias in estimation of dynamic lag coefficients. Each of these biases have been addressed individually in the literature. In this paper, we address all three biases in arriving at our estimates. Analyzing an annual panel data set of real exchange rates for 21 OECD countries from 1948 to 2002, our point estimate of the half-life is 5.5 years.
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Date of creation: Jul 2004
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- Choi, Chi-Young & Mark, Nelson C. & Sul, Donggyu, 2006. "Unbiased Estimation of the Half-Life to PPP Convergence in Panel Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 921-938, June.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- F31 - International Economics - - International Finance - - - Foreign Exchange
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-07-18 (All new papers)
- NEP-ECM-2004-07-18 (Econometrics)
- NEP-ETS-2004-07-18 (Econometric Time Series)
- NEP-IFN-2004-07-18 (International Finance)
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