Johan Lyhagen: Dept. of Economic Statistics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden
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.
11 pages, November 29, 2000
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