The overvaluation of purchasing power parity

• 成果类型: Article
• 署名作者: O'Connell, PGJ
• 署名单位: Harvard University
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/S0022-1996(97)00017-2
• 发表日期: 1998
• 页码: 1-19
• 关键词: purchasing power parity; Real exchange rate; mean-reversion

摘要

Recent panel studies of purchasing power parity have reported strong evidence of mean-reversion in real exchange rates. However, these studies fail to control for cross-sectional dependence in the data. This failure has dramatic consequences, raising the significance level of tests with a nominal size of 5 percent to as much as 50 percent. It is shown in this paper that, controlling for cross-sectional dependence, no evidence against the random walk null can be found in panels of up to 64 real exchange rates. This finding cannot be attributed to low power, as there is ample power in panels of this size to reject the unit-root null. (C) 1998 Elsevier Science B.V.