Unbiased Estimation of the Half-Life to PPP Convergence in Panel Data

22 Pages Posted: 27 Jul 2004 Last revised: 2 Jan 2022

See all articles by C. Y. Choi

C. Y. Choi

University of Texas at Arlington - College of Business Administration - Department of Economics

Nelson C. Mark

University of Notre Dame - Department of Economics and Econometrics; National Bureau of Economic Research (NBER)

Donggyu Sul

Independent

Date Written: July 2004

Abstract

Three potential sources of bias present complications for estimating the half-life of purchasing power parity deviations from panel data. They are the bias associated with inapproiate aggregation across heterogeneous coefficients, time aggregation of commodity prices, and downward bias in estimation of dynamic lag coefficients. Each of these biases have been addressed individually in the literature. In this paper, we address all three biases in arriving at our estimates. Analyzing an annual panel data set of real exchange rates for 21 OECD countries from 1948 to 2002, our point estimate of the half-life is 5.5 years.

Suggested Citation

Choi, Chi-Young and Mark, Nelson Chung and Sul, Donggyu, Unbiased Estimation of the Half-Life to PPP Convergence in Panel Data (July 2004). NBER Working Paper No. w10614, Available at SSRN: https://ssrn.com/abstract=565167

Chi-Young Choi

University of Texas at Arlington - College of Business Administration - Department of Economics ( email )

Box 19479 UTA
Arlington, TX 76019
United States

Nelson Chung Mark (Contact Author)

University of Notre Dame - Department of Economics and Econometrics ( email )

442 Flanner
Notre Dame, IN 46556
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Donggyu Sul

Independent