On PPP , unit roots and panels

@inproceedings{Wagner2005OnP,
  title={On PPP , unit roots and panels},
  author={Martin R. Wagner},
  year={2005}
}
This paper re-assesses the panel (unit root test) evidence for PPP on four monthly data sets. We discuss and illustrate that commonly-used first generation panel unit root tests are inappropriate for PPP analysis since they are constructed for cross-sectionally uncorrelated panels. Given that real exchange rate panel data sets are – almost by construction – highly cross-sectionally correlated, so called second generation panel unit root methods that allow for and model cross-sectional… CONTINUE READING