Another Look at the Null of Stationary RealExchange Rates. Panel Data with Structural Breaks and Cross-section Dependence

Syed A. Basher and Josep Carrion-i-Silvestre
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Syed A. Basher: Department of Economics. York University.

No 200710, IREA Working Papers from University of Barcelona, Research Institute of Applied Economics

Abstract: This paper re-examines the null of stationary of real exchange rate for a panel of seventeen OECD developed countries during the post-Bretton Woods era. Our analysis simultaneously considers both the presence of cross-section dependence and multiple structural breaks that have not received much attention in previous panel methods of long-run PPP. Empirical results indicate that there is little evidence in favor of PPP hypothesis when the analysis does not account for structural breaks. This conclusion is reversed when structural breaks are considered in computation of the panel statistics. We also compute point estimates of half-life separately for idiosyncratic and common factor components and find that it is always below one year.

Keywords: Purchasing power parity; Half-lives; Panel unit roottests; Multiple structural breaks; Cross-section dependence. (search for similar items in EconPapers)
JEL-codes: C32 C33 E31 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2007-05, Revised 2007-05
New Economics Papers: this item is included in nep-cba, nep-ets, nep-ifn and nep-mac
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Citations: View citations in EconPapers (38)

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Persistent link: https://EconPapers.repec.org/RePEc:ira:wpaper:200710

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