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THE PURCHASING POWER PARITY PERSISTENCE PUZZLE: EVIDENCE FROM BLACK MARKET REAL EXCHANGE RATES *
Author(s) -
CERRATO MARIO,
KELLARD NEIL,
SARANTIS NICHOLAS
Publication year - 2008
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/j.1467-9957.2008.01066.x
Subject(s) - purchasing power parity , econometrics , economics , quantile , univariate , relative purchasing power parity , emerging markets , monte carlo method , persistence (discontinuity) , exchange rate , financial economics , statistics , monetary economics , mathematics , macroeconomics , multivariate statistics , geotechnical engineering , engineering
In this paper we analyse the purchasing power parity (PPP) persistence puzzle using a unique data set of black market real exchange rates for 36 emerging market economies and (exact and approximate) median unbiased univariate and panel estimation methods. We construct bootstrap confidence intervals for the half‐lives, as well as exact quantiles of the median function for different significance levels using Monte Carlo simulation. Even after accounting for a number of econometric issues, the PPP persistence puzzle is still a striking characteristic of the majority of emerging market countries. However, in a minority of exchange rates, the PPP puzzle is removed.