Why not use standard panel unit root test for testing PPP

Johan Lyhagen ()

No 413, SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: In this paper we show the consequences of applying a panel unit root test when testing for a purchasing power parity relationship. The distribution of the tests investigated, including the IPS test of Im et al (1997), are influenced by a common stochastic trend which is usually not accounted for. The result is that the size tends to one with the number of cross-sections.

Keywords: Dynamic panels; Monte Carlo; Purchasing power parity (search for similar items in EconPapers)
JEL-codes: C12 C22 C23 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2000-11-29
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Citations: View citations in EconPapers (46)

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:hastef:0413

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