Scandinavian Working Papers in Economics
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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 303:
A long memory panel unit root test: PPP revisited

Jonas Andersson and Johan Lyhagen ()

Abstract: In this paper two techniques, long memory and panel data models, are combined in order to increase the power of unit root tests. The power is shown to be always better against fractional alternatives and usually against autoregressive alternatives. The test is then used to reanalyze data sets investigated by Cheung and Lai (1993), Oh (1996) and Papell (1997) who studied the purchasing power parity. In some cases, the test rejected the hypothesis of no cointegration between foreign and domestic prices where the other authors tests did not.

Keywords: Unit root; Long memory; Purchasing power parity; (follow links to similar papers)

JEL-Codes: C12; C14; C22; C23; (follow links to similar papers)

14 pages, February 12, 1999

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