How Sure are We About Purchasing Power Parity? Panel Evidence with the Null of Stationary Real Exchange Rates
28 Pages Posted: 19 Jul 2000
Date Written: April 2000
This article presents evidence on mean reversion in industrial countries' real exchange rates in a setup that accounts naturally for cross-sectional dependence, is invariant to the benchmark currency and actually tests for the null of interest, i.e. purchasing power parity. Our results are based on the Kwiatkowski et al. (1992) test for the stationarity null generalized in a multivariate random walk plus noise model by Nyblom and Harvey (2000).
Keywords: Real exchange rate, unit root
JEL Classification: C22, C52, F31, F47
Suggested Citation: Suggested Citation