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A re-examination of the Purchasing Power Parity using non-stationary dynamic panel methods : a comparative approach for developing and developed countries

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  • Imed Drine
  • Christophe Rault

Abstract

The aim of this paper is to apply recent advances in the econometrics of non-stationary dynamic panel methods to examine the robustness of the PPP concept for a sample of 73 developed and developing countries. Our investigations indicate that the strong PPP is verified for OECD and MENA countries. However in Africa, Asia, Latin America and the PECO, PPP does not seem relevant to characterize the long-run behavior of the real exchange rate. A widening of our analysis field shows that the nature of the exchange rate regime doesn???t condition the validity of the PPP and that the PPP is more easily accepted in countries with high inflation than with low one.

Suggested Citation

  • Imed Drine & Christophe Rault, 2003. "A re-examination of the Purchasing Power Parity using non-stationary dynamic panel methods : a comparative approach for developing and developed countries," William Davidson Institute Working Papers Series 2003-570, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:2003-570
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    References listed on IDEAS

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    More about this item

    Keywords

    Purchasing power parity; real exchange rate; developed country; developing country; panel unit-root and cointegration tests.;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F0 - International Economics - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

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