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Are PPP tests erratically behaved? Some panel evidence

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  • Guglielmo Maria Caporale
  • Christoph Hanck

Abstract

This paper examines whether, in addition to standard unit root and cointegration tests, panel approaches also produce test statistics behaving erratically when applied to tests for Purchasing Power Parity (PPP). We show that if appropriate tests (which are robust to cross-sectional dependence) are used, any evidence of erratic behaviour disappears, and empirical support is found for PPP.

Suggested Citation

  • Guglielmo Maria Caporale & Christoph Hanck, 2010. "Are PPP tests erratically behaved? Some panel evidence," International Review of Applied Economics, Taylor & Francis Journals, vol. 24(2), pages 203-221.
  • Handle: RePEc:taf:irapec:v:24:y:2010:i:2:p:203-221 DOI: 10.1080/02692170903424331
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    References listed on IDEAS

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    1. Guglielmo Maria Caporale & Mario Cerrato, 2006. "Panel data tests of PPP: a critical overview," Applied Financial Economics, Taylor & Francis Journals, pages 73-91.
    2. Caporale, Guglielmo Maria & Pittis, Nikitas & Sakellis, Panayiotis, 2003. "Testing for PPP: the erratic behaviour of unit root tests," Economics Letters, Elsevier, vol. 80(2), pages 277-284, August.
    3. Guglielmo Maria Caporale & Christoph Hanck, 2009. "Cointegration tests of PPP: do they also exhibit erratic behaviour?," Applied Economics Letters, Taylor & Francis Journals, vol. 16(1), pages 9-15.
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    More about this item

    Keywords

    Purchasing Power Parity; PPP; real exchange rates; erratic behaviour; panel tests;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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