A century of purchasing power parity: Further evidence

Mohsen Bahmani‐Óskooee · Ali M. Kutan · Su Zhou

30 citations0/0 files storedRePEc: Research Papers in Economics

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Abstract

Since the publication of Taylor's (2002) results supporting Purchasing Power Parity (PPP) theory using a century of data, several authors have tried to verify PPP using the same data set. While one study has rejected Taylor''s strong conclusion, others have supported it. In this paper we use yet a different unit root testing procedure to determine whether Taylor''s results are sensitive to switching the null hypothesis of stationarity with the alternative of non-stationarity. More precisely, we rely upon Kwiatkowski, et al. (1992) test and apply it to the real bilateral and real effective exchange rates of 20 countries in Taylor''s sample. The results provide support for PPP in 18 of the 20 countries that are much closer to Taylor''s findings than any other study.

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References

1992Testing the null hypothesis of stationarity against the alternative of a unit root 1992Efficient Tests for an Autoregressive Unit Root 2001LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power 1991Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?2002Testing for a unit root in the nonlinear STAR framework 1994Testing for a Unit Root in Time Series With Pretest Data-Based Model Selection 2002A Century of Purchasing-Power Parity 1993LONG-RUN NEUTRALITY AND SUPERNEUTRALITY IN AN ARIMA FRAMEWORK

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