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Testing for PPP in the Mean-Group Panel Regression Framework: Further Evidence

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  • Noman, Abdullah

Abstract

The paper investigates the validity of PPP by using 15 OECD countries data of monthly frequency from 1980:01 to 2005:12 and tests for the symmetry and proportionality hypotheses. The test for PPP is conducted in the framework of the General Relative PPP (RPPP) as proposed by Coakley et al. (2005) using the Mean-Group (MG) estimators of Pesaran and Smith (1995). We apply two variants of the MG estimators, namely MG and CMG, where the latter takes into account the problem of cross-sectional dependence (CSD). The symmetry null is unequivocally accepted for both estimators in CPI as well as PPI panels. The proportionality null, however, is rejected in the CPI panel with MG procedure but accepted with CMG. In the PPI panel, the MG estimate cannot reject the null while the CMG estimate marginally rejects it. Our findings are only partially supportive of the general RPPP.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7825.

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Date of creation: 17 Mar 2008
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Handle: RePEc:pra:mprapa:7825

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Keywords: Purchasing Power Parity; Mean-Group Regression; Symmetry and Proportionality; OECD; General Relative PPP;

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  1. Ron Smith & Ana-Maria Fuertes & Jerry Coakley, 2001. "Small Sample Properties of Panel Time-series Estimators with I(1) Errors," Working Papers wp01-08, Warwick Business School, Finance Group.
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  3. Jerry Coakley & Ana-Maria Fuertes & Ron Smith, 2004. "Unobserved Heterogeneity in Panel Time Series Models," Birkbeck Working Papers in Economics and Finance 0403, Birkbeck, Department of Economics, Mathematics & Statistics.
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  24. Hakkio, Craig S., 1984. "A re-examination of purchasing power parity : A multi-country and multi-period study," Journal of International Economics, Elsevier, vol. 17(3-4), pages 265-277, November.
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Cited by:
  1. Hwa-Taek Lee & Gawon Yoon, 2013. "Does purchasing power parity hold sometimes? Regime switching in real exchange rates," Applied Economics, Taylor & Francis Journals, vol. 45(16), pages 2279-2294, June.

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