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Purchasing power parity in emerging markets: A panel stationary test with both sharp and smooth breaks

Mohsen Bahmani-Oskooee (), Tsangyao Chang () and Kuei-Chiu Lee

Economic Systems, 2016, vol. 40, issue 3, 453-460

Abstract: Univariate unit root tests are said to have low power in rejecting the null of unit root or supporting the stationarity of real exchange rates, hence the purchasing power parity theory (PPP). In this paper we apply a panel stationary test with both sharp and smooth breaks to test PPP in 11 emerging countries, using their real effective exchange rates over January 1994 to March 2013. This test has been proved to be more powerful in capturing both long swings and sharp breaks of the real effective exchange rates. Our empirical results from several panel tests provide strong support for PPP in these emerging countries.

Keywords: Purchasing power parity; Emerging markets; Panel stationary test; Sharp and smooth breaks (search for similar items in EconPapers)
JEL-codes: C22 F31 (search for similar items in EconPapers)
Date: 2016
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