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Testing for PPP in the Mean-Group Panel Regression Framework: Further Evidence

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  • Noman, Abdullah

Abstract

The paper investigates the validity of PPP by using 15 OECD countries data of monthly frequency from 1980:01 to 2005:12 and tests for the symmetry and proportionality hypotheses. The test for PPP is conducted in the framework of the General Relative PPP (RPPP) as proposed by Coakley et al. (2005) using the Mean-Group (MG) estimators of Pesaran and Smith (1995). We apply two variants of the MG estimators, namely MG and CMG, where the latter takes into account the problem of cross-sectional dependence (CSD). The symmetry null is unequivocally accepted for both estimators in CPI as well as PPI panels. The proportionality null, however, is rejected in the CPI panel with MG procedure but accepted with CMG. In the PPI panel, the MG estimate cannot reject the null while the CMG estimate marginally rejects it. Our findings are only partially supportive of the general RPPP.

Suggested Citation

  • Noman, Abdullah, 2008. "Testing for PPP in the Mean-Group Panel Regression Framework: Further Evidence," MPRA Paper 7825, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:7825
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    References listed on IDEAS

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    Cited by:

    1. Hwa-Taek Lee & Gawon Yoon, 2013. "Does purchasing power parity hold sometimes? Regime switching in real exchange rates," Applied Economics, Taylor & Francis Journals, vol. 45(16), pages 2279-2294, June.

    More about this item

    Keywords

    Purchasing Power Parity; Mean-Group Regression; Symmetry and Proportionality; OECD; General Relative PPP;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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