Purchasing Power Parity Tests in Cointegrated Panels
This paper employs recently developed techniques for testing hypotheses in cointegrated panels to test the strong version of purchasing power parity for a panel of post Bretton Woods data. We compare results using fully modifed and dynamic OLS approaches, and strongly reject the hypothesis. We also introduce a new between-dimension dynamic OLS estimator and find that the between-dimensio n FMOLS and DOLS estimates of the long-run deviation from purchasing power parity are larger than the correspondin g within-dimension estimates. Finally, we attempt to reconcile these rejections with the mixed findings that have been reported in panel unit root studies.
|Date of creation:||Nov 2001|
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|Publication status:||published in Review of Economics and Statistics, November 2001, v. 83, iss. 4, pp. 727-31|
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