PPP in OECD Countries: An Analysis of Real Exchange Rate Stationarity, Cross-sectional Dependency and Structural Breaks
Mark Holmes (),
Jesus Otero () and
Koç University-TUSIAD Economic Research Forum Working Papers from Koc University-TUSIAD Economic Research Forum
The stationarity of OECD real exchange rates over the period 1972-2008 is tested using a panel of twenty six 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 (2008) panel stationarity test. The real exchange rates of the twenty six 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.
Keywords: Heterogeneous dynamic panels; purchasing power parity; mean reversion; panel stationarity test. (search for similar items in EconPapers)
JEL-codes: F31 F33 G15 (search for similar items in EconPapers)
Pages: 30 pages
New Economics Papers: this item is included in nep-cba and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
Journal Article: PPP in OECD Countries: An Analysis of Real Exchange Rate Stationarity, Cross-Sectional Dependency and Structural Breaks (2012)
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)
Persistent link: https://EconPapers.repec.org/RePEc:koc:wpaper:1135
Access Statistics for this paper
More papers in Koç University-TUSIAD Economic Research Forum Working Papers from Koc University-TUSIAD Economic Research Forum Contact information at EDIRC.
Bibliographic data for series maintained by Sumru Oz ().