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PPP: Further evidence from Japanese regional data

  • Nagayasu, Jun
  • Inakura, Noriko

This paper empirically analyzes Purchasing Power Parity (PPP) among Japanese municipalities from 1990 to 2003. Using panel unit root tests including one that considers cross-sectional dependence in the data (e.g., [Moon, H. R. and Perron, B. (2004). Testing for a unit root in panels with dynamic factors. Journal of Econometrics, 112, 81-126.]), we find evidence in favor of PPP, confirming the stationarity of relative prices in Japan and thus the long-run co-movement of municipal prices. Furthermore, the half-life of a shock is found to be about 2Â years, which is faster than that of the international PPP. As in the European and US studies, short-term deviations from PPP can be explained by income differentials and distance between cities.

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Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 18 (2009)
Issue (Month): 3 (June)
Pages: 419-427

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Handle: RePEc:eee:reveco:v:18:y:2009:i:3:p:419-427
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620165

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