New multi-country evidence on purchasing power parity: multivariate unit root test results

Jan Groen

No EI 2000-09/A, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: In this paper a likelihood-based multivariate unit root testing framework is utilized to test whether the real exchange rates of G10 countries are non-stationary. The framework uses a likelihood ratio statistic which combines the information across all involved countries while retaining heterogeneous rates of mean reversion. This likelihood ratio statistic has an asymptotic distribution which can be typified as a summation of squared, univariate Dickey and Fuller (1979) distributions. Our multivariate unit root tests indicate that bilateral G10 real exchange rates are stationary, irrespective of the numeraire country. We also analyze per panel the time necessary to have an adjustment to a shock in the individual real exchange rates. From this analysis it becomes apparent that there are significant cross-country differences in the adjustment of individual real exchange rates within each panel.

Keywords: Maximum likelihood estimation; Multivariate unit root testing; PPP; Real exchange rates (search for similar items in EconPapers)
Date: 2000-03-24
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Citations: View citations in EconPapers (2)

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Working Paper: New Multi-Country Evidence on Purchasing Power Parity: Multi-Variate Unit Root Test Results (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:ems:eureir:1642

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