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PURCHASING POWER PARITY FOR DEVELOPING AND DEVELOPED COUNTRIES. WHAT CAN WE LEARN FROM NON‐STATIONARY PANEL DATA MODELS?
Author(s) -
Drine Imed,
Rault Christophe
Publication year - 2008
Publication title -
journal of economic surveys
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.657
H-Index - 92
eISSN - 1467-6419
pISSN - 0950-0804
DOI - 10.1111/j.1467-6419.2007.00548.x
Subject(s) - purchasing power parity , economics , cointegration , latin americans , exchange rate , econometrics , inflation (cosmology) , relative purchasing power parity , developing country , panel data , macroeconomics , international economics , economic growth , political science , physics , theoretical physics , law
The aim of this paper is to apply recently developed panel cointegration techniques proposed by Pedroni ( Oxford Bulletin of Economics and Statistics 61 (1999): Supplement, 653–670; Econometric Theory 20 (2004): 597–625) and generalized by Banerjee and Carrion‐i‐Silvestre (Working Paper 591, European Central Bank, February 2006) to examine the robustness of the PPP concept for a sample of 80 developed and developing countries. We find that strong PPP is verified for OECD countries and weak PPP for Middle East and North African countries. However, in African, Asian, Latin American and Central and Eastern European countries, PPP does not seem relevant to characterize the long‐run behavior of the real exchange rate. Further investigations indicate that the nature of the exchange rate regime does not condition the validity of PPP, which is more easily accepted in countries with high rather than low inflation.