SSE/EFI Working Paper Series in Economics and Finance
No 413:
Why not use standard panel unit root test for testing PPP
Johan Lyhagen ()
Abstract: In this paper we show the consequences of applying a panel
unit root test when testing for a purchasing power parity relationship. The
distribution of the tests investigated, including the IPS test of Im et al
(1997), are influenced by a common stochastic trend which is usually not
accounted for. The result is that the size tends to one with the number of
cross-sections.
Keywords: Dynamic panels; Monte Carlo; Purchasing power parity; (follow links to similar papers)
JEL-Codes: C12; C22; C23; (follow links to similar papers)
11 pages, November 29, 2000
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