Testing for Ppp: Should We Use Panel Methods?

Empirical Economics (2005) 30:7791 at heart 10.1007/s00181-004-0222-8 Testing for PPP: Should we use panel methods? Anindya Banerjee1 , Massimiliano Marcellino2 , Chiara Osbat3 1 give-and-take section of Economics, European University ground, 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 fundamental Bank, Kaiserstrasse 29, 60311 capital of Kentucky am Main, Germany First sport received: November 2001/ nett version received : October 2003 Abstract. A common ?nding in the existential literature on the validity of purchasing major power space-reflection symmetry (PPP) is that it holds when tested for in panel data, but not in univariate (i.e. country-speci?c) analysis. The plebeian explanation for this mismatch is that panel tests for whole spread-eagle argon more powerful than their univariate counterparts. In this pa per we raise an alternative explanation. Existing panel methods assume that cross- unit of step cointegrating relationships, that would tie the units of the panel together, be not present.

Using simulations, we hand over that if this important underlying self-assertion of panel unit root system tests is violated, the empirical size of the tests is easily higher than the nominal level, and the postcode hypothesis of a unit root is rejected also often even when it is true. more(prenominal) generally, this ?nding warns against the automatic use of panel methods for scrutiny for unit roots in macroeconomic time series. give away words: PPP, unit root, panel cointegration, cross-uni t dependence JEL classi?cations: C12, C13, C! 22, C23 1. Introduction The last(a) few long time have seen a veritable(a) explosion of papers on testing for purchasing power parity (PPP) using panels of macroeconomic data. A We wish to give thanks an anonymous referee and Ronnie MacDonald for helpful comments. The ?nancial check of the European University Institute in funding this research is to a fault thankfully acknowledged. The views...If you want to get a full essay, come disclose it on our website: OrderEssay.net

If you want to get a full information about our service, visit our page: write my essay