PPP in OECD Countries: An Analysis of Real Exchange Rate Stationarity, Cross-Sectional Dependency and Structural Breaks

Mark Holmes (), Jesus Otero and Theodore Panagiotidis

Open Economies Review, 2012, vol. 23, issue 5, 767-783

Abstract: The stationarity of OECD real exchange rates over the period 1972–2008 is tested using a panel of 26 member countries. The methodology followed stems from the need to meet several key concerns: (i) the identification of which panel members are stationary; (ii) the presence of cross-sectional dependence among the countries in the panel; and (iii) the identification of potential structural breaks that might have occurred at different points in time. To address these concerns, we employ a recent test that examines the time series properties of the data within a panel framework, namely the Hadri and Rao (Oxford Bulletin of Economics and Statistics 70: 245–269, 2008 ) panel stationarity test. The real exchange rates of the 26 OECD countries are found to be stationary when considered as a panel, but only after allowing for endogenously-determined structural breaks and cross section dependence. We also find that once these structural breaks are removed from the underlying series, the half-life of shocks to the real exchange rate is much shorter than has been calculated in earlier studies. Copyright Springer Science+Business Media, LLC 2012

Keywords: Heterogeneous dynamic panels; Purchasing power parity; Mean reversion; Panel stationarity test; F31; F33; G15 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://hdl.handle.net/10.1007/s11079-011-9234-0 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: PPP in OECD Countries: An Analysis of Real Exchange Rate Stationarity, Cross-sectional Dependency and Structural Breaks (2011)
Working Paper: PPP in OECD countries: An analysis of real exchange rate stationarity, cross-sectional dependency and strucutral breaks (2011)
Working Paper: PPP in OECD Countries: An Analysis of Real Exchange Rate Stationarity, cross-Sectional Dependency and Structural Breaks (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:openec:v:23:y:2012:i:5:p:767-783

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/11079/PS2

DOI: 10.1007/s11079-011-9234-0

Access Statistics for this article

Open Economies Review is currently edited by G.S. Tavlas

More articles in Open Economies Review from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().