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Does the purchasing power parity hypothesis hold after 1998?

Listed author(s):
  • Zanetti Chini, Emilio

We investigate the empirical support to the Purchasing Power Parity hypothesis by using sixteen real exchange rates for the decade 1999-2009. The literature has recently arrived to a solution to the two PPP puzzles if considering the post-Bretton Woods period from 1975 to 1998. Time series-based studies consider few cases, while panel-based studies have been recently criticized. Multivariate and panel cointegration, and nonlinear models are here implemented. The theory is rejected and both the puzzles remain unsolved if considering a linear structure, while a nonlinear scenario seems to allow for a partial solution to the first puzzle.

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File URL: https://mpra.ub.uni-muenchen.de/37418/2/MPRA_paper_37418.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 27225.

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Date of creation: 15 Nov 2010
Handle: RePEc:pra:mprapa:27225
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  4. Kaddour Hadri, 1999. "Testing For Stationarity In Heterogeneous Panel Data," Research Papers 1999_04, University of Liverpool Management School.
  5. Peter Pedroni, 2001. "Purchasing Power Parity Tests In Cointegrated Panels," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 727-731, November.
  6. Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
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  8. Nyblom, Jukka & Harvey, Andrew, 1999. "Tests of Common Stochastic Trends," Cambridge Working Papers in Economics 9902, Faculty of Economics, University of Cambridge.
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  11. Johansen, Søren & Juselius, Katarina & Frydman, Roman & Goldberg, Michael, 2010. "Testing hypotheses in an I(2) model with piecewise linear trends. An analysis of the persistent long swings in the Dmk/$ rate," Journal of Econometrics, Elsevier, vol. 158(1), pages 117-129, September.
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  13. Anindya Banerjee & Massimiliano Marcellino & Chiara Osbat, 2005. "Testing for PPP: Should we use panel methods?," Empirical Economics, Springer, vol. 30(1), pages 77-91, January.
  14. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
  15. Johansen, Soren, 2002. "A small sample correction for tests of hypotheses on the cointegrating vectors," Journal of Econometrics, Elsevier, vol. 111(2), pages 195-221, December.
  16. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
  17. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
  18. González, Andrés & Teräsvirta, Timo & van Dijk, Dick, 2005. "Panel Smooth Transition Regression Models," SSE/EFI Working Paper Series in Economics and Finance 604, Stockholm School of Economics.
  19. Maximo Camacho, 2004. "Vector smooth transition regression models for US GDP and the composite index of leading indicators," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 23(3), pages 173-196.
  20. Eitrheim, Øyvind & Teräsvirta, Timo, 1995. "Testing the Adequacy of Smooth Transition Autoregressive Models," SSE/EFI Working Paper Series in Economics and Finance 56, Stockholm School of Economics.
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  22. Gallant, A Ronald & Rossi, Peter E & Tauchen, George, 1993. "Nonlinear Dynamic Structures," Econometrica, Econometric Society, vol. 61(4), pages 871-907, July.
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