Is Purchasing Power Parity over-valuating?

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LIU, CHAO (2009) Is Purchasing Power Parity over-valuating? [Dissertation (University of Nottingham only)] (Unpublished)

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Abstract

Abstract

Most previous, researchers did carry out with cross-sectional dependence (CSD) on panel unit root test. We use panel unit root PPP tests which allowed assessing the cross-sectional dependence. Those figures are chosen from 10 OECD countries which from January 1998 to June 2009. The first amendment in the results stems from using CPI or PPI indexes, it can continue ignoring or allowing for cross-sectional dependence. In the paper, we use two different panel unit test methods to determine the validity of PPP: one is the standard panel unit test of Im, Peasaran and Shin (2003) [IPS] test; another is the novel cross sectional augmented IPS or CIPS panel unit root test of Pesaran(2003). We learn more obvious evidences of CSD which contradict IPS and support PPP, compared with the establishment of Coakley, J., Kellard N., and Snaith S (2005). However, the evidences of CSD reversion of IPS support for PPP are not as compelling as those by O'Connell (1998). Therefore, we argue that allowing for CSD cannot change the role of PPP as a decisive criterion for real exchange rate variation. Secondly, PPI panels offer many more supports for PPP than CPI panel which may be expected to the property of the high proportion of tradable products in PPI index. Thirdly, the null unit root hypothesis is much easier to be rejected by GBP as numeraire currency than by USD as numerable currency. Finally, we use an average half-life degradation of about 0.6 to 2.8 years on deviation from PPP criterion which is slightly shorter than the consensus 4-5 year’s half-life in literatures.

Item Type: Dissertation (University of Nottingham only)
Depositing User: EP, Services
Date Deposited: 03 Feb 2010 12:19
Last Modified: 24 Apr 2018 16:26
URI: https://eprints.nottingham.ac.uk/id/eprint/23108

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