All Rights Reserved
AccessEcon LLC 2006, 2008.
Powered by MinhViet JSC

Johan Lyhagen
''Why not use standard panel unit root test for testing PPP''
( 2008, Vol. 3 No.26 )
In this paper we show the consequences of applying a panel unit root test that assumes independence between the cross-sections when testing for a purchasing power parity relationship. The distribution of the tests investigated, including the IPS test of Im et al (2003), are influenced by a common stochastic trend which is usually not accounted for. The result is that the empirical size tends to one with the number of cross-sections. Hence, it is of crucial importance to account for this cross-sectional dependency.
JEL: C2 - Single Equation Models; Single Variables: General
Manuscript Received : Sep 19 2007 Manuscript Accepted : May 14 2008

  This abstract has been downloaded 1658 times                The Full PDF of this paper has been downloaded 152018 times