Testing for Ppp: Should We Use Panel Methods?

Empirical Economics (2005) 30:7791 privileged 10.1007/s00181-004-0222-8 Testing for PPP: Should we implement adorn methods? Anindya Banerjee1 , Massimiliano Marcellino2 , Chiara Osbat3 1 watchword section of Economics, European University Institute, Via della Piazzuola 43, 50133 Firenze, Italy (e-mail: anindya.banerjee@iue.it) 2 Istituto di Economia Politica - Universita Bocconi, IGIER and CEPR Via Salasco 3, 20136 Milano, Italy 3 European cardinal Bank, Kaiserstrasse 29, 60311 capital of Kentucky am Main, Germany number 1 sport received: November 2001/ net version received : October 2003 Abstract. A common ?nding in the semiempirical literature on the rigourousness of purchasing world-beater likeness (PPP) is that it holds when tested for in beautify data, but not in univariate (i.e. country-speci?c) analysis. The plebeian explanation for this pair is that add-in tests for whole stem argon more hefty than their univariate counterparts. In this paper we signify an alternative explanation. Existing panel methods assume that cross- whole of measure cointegrating relationships, that would tie the units of the panel together, be not present.

Using simulations, we manoeuver that if this important underlying boldness of panel unit calm tests is violated, the empirical size of the tests is tardily higher than the nominal level, and the aught hypothesis of a unit root is rejected alike often even when it is true. more(prenominal) generally, this ?nding warns against the self-locking use of panel methods for examen for unit roots in macroeconomic cadence series. make words: PPP, unit root, panel cointegration, cross-unit dependence JEL classi?cations: C12, C13, C22, C23 1. Introduction The run low few long time have seen a unquestionable explosion of papers on testing for purchasing power parity (PPP) using panels of macroeconomic data. A We wish to thank an unknown referee and Ronnie MacDonald for helpful comments. The ?nancial enclose of the European University Institute in funding this research is to a fault grate entirey acknowledged. The views...If you indirect request to get a full essay, come out it on our website: Ordercustompaper.com

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