Show simple item record

dc.contributor.authorBANERJEE, Anindyaen
dc.contributor.authorMARCELLINO, Massimilianoen
dc.contributor.authorOSBAT, Chiaraen
dc.identifier.citationEmpirical Economics , 2005, 30, 1, 77-91en
dc.description.abstractA common finding in the empirical literature on the validity of purchasing power parity (PPP) is that it holds when tested for in panel data, but not in univariate (i.e. country-specific) analysis. The usual explanation for this mismatch is that panel tests for unit roots are more powerful than their univariate counterparts. In this paper we suggest an alternative explanation. Existing panel methods assume that cross-unit cointegrating relationships, that would tie the units of the panel together, are not present. Using simulations, we show that if this important underlying assumption of panel unit root tests is violated, the empirical size of the tests is substantially higher than the nominal level, and the null hypothesis of a unit root is rejected too often even when it is true. More generally, this finding warns against the automatic use of panel methods for testing for unit roots in macroeconomic time series.en
dc.relation.ispartofEmpirical Economics
dc.titleTesting for PPP: Should we use Panel Methods?en

Files associated with this item


There are no files associated with this item.

This item appears in the following Collection(s)

Show simple item record