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A long memory panel unit root test: PPP revisited

  • Andersson, Jonas

    (Department of Statistics)

  • Lyhagen, Johan


    (Dept. of Economic Statistics, Stockholm School of Economics)

In this paper two techniques, long memory and panel data models, are combined in order to increase the power of unit root tests. The power is shown to be always better against fractional alternatives and usually against autoregressive alternatives. The test is then used to reanalyze data sets investigated by Cheung and Lai (1993), Oh (1996) and Papell (1997) who studied the purchasing power parity. In some cases, the test rejected the hypothesis of no cointegration between foreign and domestic prices where the other authors tests did not.

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Paper provided by Stockholm School of Economics in its series SSE/EFI Working Paper Series in Economics and Finance with number 303.

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Length: 14 pages
Date of creation: 12 Feb 1999
Date of revision:
Handle: RePEc:hhs:hastef:0303
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