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The Panel Purchasing Power Parity Puzzle

  • Papell, David H.

Does long-run purchasing power parity (PPP) hold over the post-1973 floating exchange rate period? Panel unit root tests provide evidence of PPP that increases with the number of observations. The strengthening of the evidence, however, is highly cyclical. When the dollar appreciates at the end of the sample, the evidence of PPP strengthens and, when it depreciates, the evidence weakens. While these patterns cannot be explained by the specifications that are normally used to model real exchange rates, the strengthening, but not the cyclical pattern, can be explained by a specification that incorporates PPP restricted structural change.

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File URL: http://dx.doi.org/10.1353/mcb.2006.0035
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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 38 (2006)
Issue (Month): 2 (March)
Pages: 447-467

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Handle: RePEc:mcb:jmoncb:v:38:y:2006:i:2:p:447-467
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  4. Papell, David H., 2002. "The great appreciation, the great depreciation, and the purchasing power parity hypothesis," Journal of International Economics, Elsevier, vol. 57(1), pages 51-82, June.
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  8. David Bowman, 1999. "Efficient tests for autoregressive unit roots in panel data," International Finance Discussion Papers 646, Board of Governors of the Federal Reserve System (U.S.).
  9. Wu, Jyh-Lin & Wu, Shaowen, 2001. "Is Purchasing Power Parity Overvalued?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(3), pages 804-12, August.
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  17. Papell, David H. & Theodoridis, Hristos, 1998. "Increasing evidence of purchasing power parity over the current float," Journal of International Money and Finance, Elsevier, vol. 17(1), pages 41-50, February.
  18. Papell, David H., 1997. "Searching for stationarity: Purchasing power parity under the current float," Journal of International Economics, Elsevier, vol. 43(3-4), pages 313-332, November.
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