PPP: Further evidence from Japanese regional data

Jun Nagayasu and Noriko Inakura

International Review of Economics & Finance, 2009, vol. 18, issue 3, 419-427

Abstract: This paper empirically analyzes Purchasing Power Parity (PPP) among Japanese municipalities from 1990 to 2003. Using panel unit root tests including one that considers cross-sectional dependence in the data (e.g., [Moon, H. R. and Perron, B. (2004). Testing for a unit root in panels with dynamic factors. Journal of Econometrics, 112, 81-126.]), we find evidence in favor of PPP, confirming the stationarity of relative prices in Japan and thus the long-run co-movement of municipal prices. Furthermore, the half-life of a shock is found to be about 2Â years, which is faster than that of the international PPP. As in the European and US studies, short-term deviations from PPP can be explained by income differentials and distance between cities.

Keywords: Purchasing; power; parity; Panel; unit; root; tests; Convergence; speed; Japanese; municipal; data; GMM (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:18:y:2009:i:3:p:419-427

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