Home Bias and Purchasing Power Parity: Evidence from the G-7 Countries

Nikolaos Mylonidis and Dimitrios Sideris

No 59, Working Papers from Bank of Greece

Abstract: Recent studies in the international economics literature emphasize the role of home bias in explaining a number of empirical puzzles. In the present study, we test for the following hypotheses: (i) that a home bias effect, which is nevertheless falling over time as traded goods markets become more integrated and consumption preferences become more similar across developed countries, influences the relationship among nominal exchange rates, domestic prices and foreign prices, and (ii) that incorporation of the home bias effect in the empirical specification of PPP enhances the robustness of the theory. We perform a panel data analysis using quarterly observations for the G-7 economies in the post-Bretton Woods era. The results confirm our hypotheses.

Keywords: PPP; Home bias; Panel data (search for similar items in EconPapers)
JEL-codes: C33 F31 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2007-04
New Economics Papers: this item is included in nep-cba and nep-ifn
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Citations: View citations in EconPapers (6)

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Journal Article: Home bias and purchasing power parity: evidence from the G-7 countries (2008)
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