Is Purchasing Power Parity Overvalued?

Jyh-Lin Wu and Shaowen Wu

Journal of Money, Credit and Banking, 2001, vol. 33, issue 3, 804-12

Abstract: The purpose of this paper is to re-examine the hypothesis of long-run Purchasing Power Parity among industrial countries under the current float using the panel data approach. We propose a new finite-sample panel data unit-root test procedure that allows for a general serial correlation structure and arbitrary contemporaneous correlation in model innovations across countries. This procedure is then applied to the recently developed panel data unit-root tests of Im, Pesaran and Shin (1996) and of Maddala and Wu (1999). The test results show sufficient evidence against the unit-root null for most samples. By comparing our results with the existing ones in the literature, we found that the method of assuming a restrictive serial correlation structure tends to weaken evidence against the unit-root null.

Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:33:y:2001:i:3:p:804-12

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