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Cointegration tests of purchasing power parity

  • Frederick Wallace


Im et al. (Unpublished working paper, 2008 ) develop cointegration tests using stationary instrumental variables. Their tests avoid the need to simulate critical values for the cointegration estimations, especially problematic in the presence of a nuisance parameter. Likewise, bootstrapping errors is unnecessary. Using an updated version of the Taylor (Rev Econ Stat 84(1):139–150, 2002 ) data set, the Im et al. (Unpublished working paper, 2008 ) approach is applied to two well-known, single equation cointegration methods to test for purchasing power parity. The estimations with instruments provide evidence of purchasing power parity (PPP) for more than half of the countries studied; but the empirical results, hence conclusions regarding PPP sometimes differ with the choice of instrument. Copyright Kiel Institute 2013

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Article provided by Springer in its journal Review of World Economics.

Volume (Year): 149 (2013)
Issue (Month): 4 (December)
Pages: 779-802

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Handle: RePEc:spr:weltar:v:149:y:2013:i:4:p:779-802
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