The DOI matches its Crossref record; 3 of the 3 references it cites were found in a registry or an index.
Testing for PPP: Should we use panel methods?
Abstract
A 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.
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Citations
Cites
Testing for unit roots in heterogeneous panels
Im, K. S., Pesaran, M. H., & Shin, Y. (2003) · Journal of Econometrics · doi:10.1016/s0304-4076(03)00092-7 · Cited by 15,435
Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors
Pedroni, P. (1999) · Oxford Bulletin of Economics and Statistics · doi:10.1111/1468-0084.61.s1.14 · Cited by 6,726
Estimating long-run relationships from dynamic heterogeneous panels
Pesaran, M. H., & Smith, R. (1995) · Journal of Econometrics · doi:10.1016/0304-4076(94)01644-f · Cited by 5,479
Cited by
Econometric Analysis of Panel Data
Baltagi, B. H. (2021) · Springer Texts in Business and Economics · doi:10.1007/978-3-030-53953-5 · Cited by 15,104
Metadata
- Authors
- Banerjee, A., Marcellino, M., & Osbat, C.
- Venue
- Empirical Economics
- Published
- 2005-05
- Volume
- 30
- Issue
- 1
- Pages
- 77-91
- ISSN
- 0377-7332
- 1435-8921
- OpenAlex
- W2104871694
- Cited by
- 306
- References
- 3
- FWCI
- 37.21
- Type
- journal article
- Language
- en
- Open access
- closed
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