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http://ssrn.com/abstract=804253
 
 

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"Aggregation Bias" Does Explain the PPP Puzzle


Jean M. Imbs


Paris School of Economics (PSE); Centre for Economic Policy Research (CEPR); Swiss Finance Institute

Haroon Mumtaz


University of London - Faculty of Social Sciences

Morten O. Ravn


European University Institute - Economics Department (ECO); London Business School - Department of Economics; University of Southampton; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Helene Rey


London Business School; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

September 2005

NBER Working Paper No. w11607

Abstract:     
This article summarizes our views on the role of an "aggregation bias" in explaining the PPP Puzzle, in response to the several papers recently written in reaction to our initial contribution. We discuss in particular the criticisms of Imbs, Mumtaz, Ravn and Rey (2002) presented in Chen and Engel (2005). We show that their contentions are based on: (i) analytical counter-examples which are not empirically relevant; (ii) simulation results minimizing the extent of "aggregation bias"; (iii) unfounded claims on the impact of measurement errors on our results; and (iv) problematic implementation of small-sample bias corrections. We conclude, as in our original paper, that "aggregation bias" goes a long way towards explaining the PPP puzzle.

Number of Pages in PDF File: 33

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Date posted: November 1, 2005  

Suggested Citation

Imbs, Jean M. and Mumtaz, Haroon and Ravn, Morten O. and Rey, Helene, "Aggregation Bias" Does Explain the PPP Puzzle (September 2005). NBER Working Paper No. w11607. Available at SSRN: http://ssrn.com/abstract=804253

Contact Information

Jean M. Imbs
Paris School of Economics (PSE) ( email )
48 Boulevard Jourdan
Paris, 75014 75014
France
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland
Haroon Mumtaz
University of London - Faculty of Social Sciences ( email )
United Kingdom
Morten O. Ravn
European University Institute - Economics Department (ECO) ( email )
Villa San Paolo
Via della Piazzuola 43
50133 Florence
Italy
London Business School - Department of Economics ( email )
Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
+44 20 7262 5050 ext. 3717 (Phone)
+44 20 7402 0718 (Fax)
University of Southampton ( email )
University Rd.
Southampton SO17 1BJ, Hampshire SO17 1LP
United Kingdom
+44 1703 593996 (Phone)
+44 1703 593858 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Helene Rey (Contact Author)
London Business School ( email )
Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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