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Are real exchange rates stationary based on panel unit‐root tests? Evidence from Pacific Basin countries
Author(s) -
Wu JyhLin,
Chen ShowLin
Publication year - 1999
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/(sici)1099-1158(199907)4:3<243::aid-ijfe99>3.0.co;2-#
Subject(s) - unit root , economics , pacific basin , econometrics , exchange rate , unit root test , cointegration , monetary economics , geology , oceanography
Recently, there have been many studies that apply the panel unit‐root test of Levin and Lin (1992) to support the validity of long‐run purchasing power parity (PPP) for industrial countries. This paper applies two recently developed panel unit‐root tests, provided by Im et al. (1995) and Maddala and Wu (1998), respectively, to re‐examine the PPP hypothesis for eight Pacific Basin countries. The empirical evidence fails to support PPP for Pacific Basin countries. This finding is robust to different base countries and to different subsets of the panel. Copyright © 1999 John Wiley & Sons, Ltd.