Purchasing power parity in OECD countries: Evidence from panel unit root

Kalyoncu H., Kalyoncu K.

ECONOMIC MODELLING, cilt.25, sa.3, ss.440-445, 2008 (SSCI) identifier identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 25 Sayı: 3
  • Basım Tarihi: 2008
  • Doi Numarası: 10.1016/j.econmod.2007.07.003
  • Dergi Adı: ECONOMIC MODELLING
  • Derginin Tarandığı İndeksler: Social Sciences Citation Index (SSCI), Scopus
  • Sayfa Sayıları: ss.440-445
  • Anahtar Kelimeler: PPP, panel data unit-root test, real exchange rate, REAL EXCHANGE-RATES, LONG-RUN VALIDITY, RANDOM-WALK, TESTS, COINTEGRATION, STATIONARY, REVERSION, BEHAVIOR, FOLLOW
  • Orta Doğu Teknik Üniversitesi Adresli: Evet

Özet

This paper investigates the validity of purchasing power parity (PPP) for 25 OECD countries by using a panel unit-root methodology. The procedure used here is to examine stationarity of real exchange rate. Using ADF unit-root test on single time-series, it is found that real exchange rate of all OECD countries have unit root. This outcome, however, might be due to the generally low power of this test. The aim of this paper is to reconsider this issue by exploiting the extra information provided by the combination of the time-series and cross-sectional data and the subsequent power advantages of panel data unit-root tests. We apply the test advocated by Im et al. [Im, K.S., Pesaran, M.H., Shin, Y., 1997. Testing for unit roots in heterogenous panels. University of Cambridge, Department of Applied Economics]. According to estimation results real exchange rate in OECD countries are stationary and support long-run purchasing power parity. (C) 2007 Elsevier B.V. All rights reserved.