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Heterogeneous Panel Unit Root Tests and Purchasing Power Parity
Author(s) -
Luintel Kul B.
Publication year - 2001
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/1467-9957.69.s1.3
Subject(s) - purchasing power parity , unit root , econometrics , parity (physics) , economics , panel data , statistics , mathematics , monetary economics , physics , particle physics , exchange rate
Doubts have been raised recently on the findings of panel studies of purchasing power parity (PPP) on the grounds that they ignore serial correlation and cross‐sectional dependence, and consequently suffer from severe size biases and loss of power. We implement an alternative panel unit root test that controls for serial correlation and cross‐sectional dependence as well as the heterogeneity of dynamics and error variances across groups, and find strong support for PPP. Our findings are consistent with other recent studies on the subject.