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Testing the Balassa-Samuelson Effect: Implications for Growth and PPP Author info | Abstract | Publisher info | Download info | Related research | Statistics João Ricardo Faria
Miguel León-Ledesma ()
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The derivation of the Balassa-Samuelson effect allows for different empirical specifications that may have important economic implications. Problems related to spurious regression could arise from the mixed order of integration of the series used and from the lack of a long run stable relationship among the variables of the model. This paper addresses these problems by using the bounds testing approach developed by Pesaran, Shin and Smith (1999). Our empirical results do not show supportive evidence for the Balassa-Samuelson effect in the long run. This seems to suggest that PPP holds. However, one of the implications of PPP is that the real exchange rate does not have any real impact on the economy. Further empirical analysis rejects this implication. In fact, the real exchange rate seems to have a long run impact on relative growth rates.
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Paper provided by Department of Economics, University of Kent in its series Studies in Economics with number
0008.
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Date of creation: Sep 2000Date of revision:
Handle: RePEc:ukc:ukcedp:0008Contact details of provider: Postal: Department of Economics, University of Kent at Canterbury, Canterbury, Kent, CT2 7NP Phone: +44 (0)1227 764000 Fax: +44 (0)1227 827850 Web page: http://www.ukc.ac.uk/economics/
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Keywords: Real exchange rate ; Output ; Causality ; Find related papers by JEL classification: F11 - International Economics - - Trade - - - Neoclassical Models of Trade F31 - International Economics - - International Finance - - - Foreign Exchange C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
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