Are Real Exchange Rates Stationary Based on Panel Unit-Root Tests? Evidence from Pacific Basin Countries.

Recently, there have been many studies that apply the panel unit-root test of Levin and Lin (1992) to support the validity of long-run purchasing power parity (PPP) for industrial countries. This paper applies two recently developed panel unit-root tests, provided by Im et al. (1995) and Maddala and Wu (1998), respectively, to re-examine the PPP hypothesis for eight Pacific Basin countries. The empirical evidence fails to support PPP for Pacific Basin countries. This finding is robust to different base countries and to different subsets of the panel. Copyright @ 1999 by John Wiley & Sons, Ltd. All rights reserved.