How Sure are We About Purchasing Power Parity? Panel Evidence with the Null of Stationary Real Exchange Rates

Kuo, Biing-Shen; Mikkola, Anne

doi:10.2139/ssrn.229235

How Sure are We About Purchasing Power Parity? Panel Evidence with the Null of Stationary Real Exchange Rates

28 Pages Posted: 19 Jul 2000

See all articles by Biing-Shen Kuo

Biing-Shen Kuo

Dept. International Business, National Chengchi University

Anne Mikkola

University of Helsinki and HECER - Department of Economics

Date Written: April 2000

Abstract

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

Kuo, Biing-Shen and Mikkola, Anne, How Sure are We About Purchasing Power Parity? Panel Evidence with the Null of Stationary Real Exchange Rates (April 2000). Available at SSRN: https://ssrn.com/abstract=229235 or http://dx.doi.org/10.2139/ssrn.229235