Getting PPP right: Identifying mean-reverting real exchange rates in panels

Journal of Banking and Finance

Volumn 33, Issue 2, 2009, Pages 390-404

  Chortareas, Georgios ^a   Kapetanios, George ^b,c  

^a UNIVERSITY OF ATHENS   (Greece)

^b QUEEN MARY UNIVERSITY OF LONDON   (United Kingdom)

^c UNIVERSITY OF ESSEX   (United Kingdom)

Author keywords

Half lives; Panel unit root tests; PPP; PPP puzzle; Real exchange rates

Indexed keywords

EID: 56549093699     PISSN: 03784266     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.jbankfin.2008.08.010     Document Type: Article

References (55)

1. Abuaf N., and Jorion P. Purchasing power parity in the long run. Journal of Finance 45 (1991) 157-174
2. Andrews D.W.K. Exactly median-unbiased estimation of first order autoregressive/unit root models. Econometrica 61 (1991) 139-165
3. Andrews D.W.K., and Chen H.Y. Approximately median-unbiased estimation of autoregressive models. Journal of Business and Economic Statistics 12 (1994) 187-204
4. Bai J., and Ng S. A PANIC attack on unit roots and cointegration. Econometrica 72 (2005) 1127-1177
5. Baltagi B.H. Econometric Analysis of Panel Data (2001), Wiley
6. Baltagi B.H., Hidalgo J., and Li Q. A nonparametric test for poolability using panel data. Journal of Econometrics 75 (1996) 322-344
7. Banerjee A., Marcellino M., and Osbat C. Some cautions on the use of panel methods for integrated series of macroeconomic data. Econometrics Journal 7 (2004) 322-340
8. Basher, S.A., Carrion-i-Silvestre, J.L., 2007. Another look at the null of stationary real exchange rates: panel data with structural breaks and cross-section dependence. Unpublished Manuscript, University of Barcelona.
9. Boucher Breuer J. An assessment of the evidence on purchasing power parity. In: Williamson J. (Ed). Estimating Equilibrium Exchange Rates (1994), Institute for International Economics, Washington, DC 245-277
10. Camba-Mendez G., and Kapetanios G. Testing the rank of the Hankel covariance matrix: a statistical approach. IEEE Transactions on Automatic Control 46 (2001) 331-336
11. Chang Y. Nonlinear IV unit root tests in panels with cross-sectional dependency. Journal of Econometrics 110 (2002) 261-292
12. Chang Y., and Song W. Panel Unit Root Tests with Cross-sectional Dependency and Heterogeneity (2002), Rice University, Mimeo
13. Choi, C.Y., Mark, N., Sul, D., 2004. Unbiased estimation of the half-life to PPP convergence in panel data. NBER Working Paper No. 10614.
14. Chortareas G.E., and Kapetanios G. The Yen real exchange rate may be stationary after all: evidence from nonlinear unit root tests. Oxford Bulletin of Economics and Statistics 65 (2004) 113-131
15. Chortareas, G.E., Kapetanios, G., 2008. Getting PPP right: Identifying mean-reverting real exchange rates in panels. Queen Mary, University of London Working Paper No. 629.
16. Chow A. Tests of equality between sets of coefficients in two linear regressions. Econometrica 28 (1960) 591-605
17. Chowdhry B., Doll R., and Xia Y. Extracting inflation from stock returns to test purchasing power parity. American Economic Review 95 (2005) 255-276
18. Cumby, R.E., 1996. Forecasting exchange rates and relative prices with the hamburger standard: is what you want what you get with McParity? NBER Working Papers 5675.
19. Frankel J.A., and Rose A.K. A panel project on purchasing power parity: mean reversion within and between countries. Journal of International Economics 40 (1996) 209-224
20. Froot K., and Rogoff K. Perspectives on PPP and long-run real exchange rates. In: Grossman G., and Rogoff K. (Eds). The Handbook of International Economics (1995), Elsevier Press 1647-1688
21. Hakkio C. A re-examination of purchasing power parity: a multi-country and multi-period study. Journal of International Economics 17 (1984) 265-277
22. Harris R.D., and Tzavalis E. Inference for unit roots in dynamic panels where the time dimension is fixed. Journal of Econometrics 91 (1999) 201-226
23. Harvey, A.C., Bates, D., 2002. Multivariate unit root tests and testing for convergence. University of Cambridge DAE Working Paper No. 0301.
24. Hausman J.A. Specification tests in econometrics. Econometrica 46 (1978) 1251-1271
25. Im K.S., Pesaran M.H., and Shin Y. Testing for unit roots in heterogeneous panels. Journal of Econometrics 115 (2003) 53-74
26. Kapetanios, G., 2003. Determining the poolability properties of individual series in panel datasets. Queen Mary, University of London Working Paper No. 499.
27. Kapetanios G. Dynamic factor extraction of cross-sectional dependence in panel unit root tests. Journal of Applied Econometrics 22 (2007) 313-338
28. Levin, A., Lin, C.F., 1992. Unit root tests in panel data: asymptotic and finite sample properties. University of California, San Diego Discussion Paper No. 92-93.
29. Lothian J.R., and Taylor M.P. Real exchange rate behavior: the recent float from the perspective of the past two centuries. Journal of Political Economy 104 (1996) 488-509
30. Lyhagen, J., 2000. Why not use standard panel unit root test for testing PPP. Working Paper Series in Economics and Finance 413, Stockholm School of Economics.
31. Macdonald R. Long-run exchange rate modelling: A survey of the recent evidence. IMF Staff Papers 42 (1995) 437-489
32. MacDonald R. Panel unit root tests and real exchange rates. Economics Letters 50 (1996) 7-11
33. Mark N.C. International Macroeconomics and Finance (2001), Blackwell
34. Moon H.R., and Perron B. Testing for a unit root in panels with dynamic factors. Journal of Econometrics 122 (2004) 81-126
35. Murphy A., and Zhu Y. Unraveling the complex interrelationships between exchange rates and fundamentals. Journal of Banking and Finance 32 (2008) 1150-1160
36. Ng S., and Perron P. Unit root tests in ARMA models with data dependent methods for the selection of the truncation lag. Journal of the American Statistical Association 90 (1995) 268-281
37. Nikolaou K. The behaviour of the real exchange rate: evidence from regression quantiles. Journal of Banking and Finance 32 (2008) 664-679
38. O'Connell P.G.J. The overvaluation of purchasing power parity. Journal of International Economics 44 (1998) 1-19
39. Oh K.Y. Purchasing power parity and unit root tests using panel data. Journal of International Money and Finance 15 (1996) 405-410
40. Papell D.H. Searching for stationarity: Purchasing power parity under the current float. Journal of International Economics 43 (1997) 313-332
41. Papell D.H., and Theodoridis H. Increasing evidence of purchasing power parity over the current float. Journal of International Money and Finance 17 (1998) 41-50
42. Papell D.H., and Theodoridis H. The choice of numeraire currency in panel tests of purchasing power parity. Journal of Money, Credit and Banking 33 (2001) 790-803
43. Pesaran M.H. A simple panel unit root test in the presence of cross section dependence. Journal of Applied Econometrics 22 (2007) 265-312
44. Pesaran M.H., and Smith R. Estimating long-run relationships from dynamic heterogeneous panels. Journal of Econometrics 68 (1995) 79-113
45. Phillips, P.C.B., Sul, D., 2002. Dynamic panel estimation and homogeneity testing under cross sectional dependence. Cowles Foundation Discussion Paper No. 1362.
46. Quah D. Exploiting cross-sectional variations for unit root inference in dynamic data. Economics Letters 44 (1995) 9-19
47. Rogoff K. The purchasing power parity puzzle. Journal of Economic Literature XXXIV (1996) 647-668
48. Sarno L., and Valente G. Deviations from purchasing power parity under different exchange rate regimes: do they revert and, if so, how?. Journal of Banking and Finance 30 (2006) 3147-3169
49. Serletis A., and Goras P. Long-horizon regression tests of the theory of purchasing power parity. Journal of Banking and Finance 28 (2004) 1961-1985
50. Shin Y., and Snell A. Mean Group Tests for Stationarity in Heterogeneous Panels (2003), University of Edinburgh, Mimeo
51. Taylor M.P., and Sarno L. The behaviour of real exchange rates during the post-Bretton Woods period. Journal of International Economics 46 (1998) 281-312
52. Wagner, M., in press. On PPP, unit roots and panels. Empirical Economics.
53. Westerlund, J., 2007. A note on the pooling of individual PANIC unit root tests. Unpublished Manuscript, Lund University.
54. Wu Y. Are real exchange rates nonstationary? Evidence from a panel data test. Journal of Money, Credit and Banking 28 (1996) 54-63
55. Ziemer R.F., and Wetzstein M.E. A Stein rule method for pooling data. Economics Letters 11 (1983) 137-143