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Testing for Purchasing Power Parity in Cointegrated Panels, Johan Lyhagen, Pär Österholm, Mikael Carlsson

Abstract
This paper applies the maximum likelihood panel cointegration method of Larsson and Lyhagen (2007) to test the strong PPP hypothesis using data for the G7 countries. This method is robust in several important dimensions relative to previous methods, including the well-known issue of cross-sectional dependence of error terms. The findings using this new method are contrasted to those from the Pedroni (1995) cointegration tests and fully modified OLS and dynamic OLS esimators of the cointegrating vectors. Our overall results are the same across all approaches: The strong PPP hypothesis is rejected in favour of weak PPP with heterogenenous cointegrating vectors
Table Of Contents
Contents; 1. Introduction; 2. Basic model and data; 3. Tests and estimators; 3.1 Maximum likelihood; 3.2 Pedroni's cointegration tests, FMOLS and DOLS; 4. Results; Tables; 1. Results from Larsson and Lyhagen's cointegration and homogeneity tests; 2. Parameter estimates of normalized cointegrating vectors; 3. Results from Pedroni's panel cointegration tests; 4. Results from the between dimension DOLS and FMOLS estimation; 5. Conclusions; 5. Results from the between dimension DOLS and FMOLS estimation; Figures; Appendix; 1. Logarithm of exchange rates; References
Language
eng
Literary Form
non fiction
Note
Description based upon print version of record
Physical Description
1 online resource (21 p.)
Specific Material Designation
remote
Form Of Item
online
Isbn
9781451913033

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