Testing for Purchasing Power Parity in Cointegrated Panels Pär Österholm

ISBN: 9786613827760

Published: December 1st 2007

ebook

21 pages


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Testing for Purchasing Power Parity in Cointegrated Panels  by  Pär Österholm

Testing for Purchasing Power Parity in Cointegrated Panels by Pär Österholm
December 1st 2007 | ebook | PDF, EPUB, FB2, DjVu, talking book, mp3, RTF | 21 pages | ISBN: 9786613827760 | 3.24 Mb

This paper applies the maximum likelihood panel cointegration method of Larsson and Lyhagen (2007) to test the strong PPP hypothesis using data for the G7 countries. This method is robust in several important dimensions relative to previous methods,MoreThis paper applies the maximum likelihood panel cointegration method of Larsson and Lyhagen (2007) to test the strong PPP hypothesis using data for the G7 countries. This method is robust in several important dimensions relative to previous methods, including the well-known issue of cross-sectional dependence of error terms.

The findings using this new method are contrasted to those from the Pedroni (1995) cointegration tests and fully modified OLS and dynamic OLS esimators of the cointegrating vectors. Our overall results are the same across all approaches: The strong PPP hypothesis is rejected in favour of weak PPP with heterogenenous cointegrating vectors.



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