Premium
Is there a base currency effect in long‐run PPP?
Author(s) -
Coakley Jerry,
Fuertes AnaMaria
Publication year - 2000
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 - 10.1002/1099-1158(200010)5:4<253::aid-ijfe133>3.0.co;2-j
Subject(s) - purchasing power parity , economics , currency , unit root , mean reversion , stylized fact , liberian dollar , monetary economics , econometrics , relative purchasing power parity , us dollar , german , panel data , exchange rate , macroeconomics , finance , history , archaeology
The base currency effect in the purchasing power parity (PPP) literature refers to the stylized fact that tests on German mark real exchange rates are more likely to support mean reversion than analogous tests on US dollar rates. Using a panel of 19 OECD currencies, 1973–1997, we employ different panel unit root approaches to investigate the view that this effect can be attributed to neglected cross‐sectional dependence. While the results from panel methods which permit cross‐sectional dependence and heterogeneous serial correlation generally support long‐run PPP, they provide no evidence of a base currency effect. Copyright © 2000 John Wiley & Sons, Ltd.