Why not use standard panel unit root test for testing PPP

In this paper we show the consequences of applying a panel unit root test when testing for a purchasing power parity relationship. The distribution of the tests investigated, including the IPS test of Im et al (1997), are influenced by a common stochastic trend which is usually not accounted for. The result is that the size tends to one with the number of cross-sections.

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Year of publication:	2000-11-29
Authors:	Lyhagen, Johan
Institutions:	Economics Institute for Research (SIR), Handelshögskolan i Stockholm
Subject:	Dynamic panels \| Monte Carlo \| Purchasing power parity

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Extent:	application/pdf application/postscript
Series:	SSE/EFI Working Paper Series in Economics and Finance.
Type of publication:	Book / Working Paper
Notes:	The text is part of a series SSE/EFI Working Paper Series in Economics and Finance Number 413 11 pages
Classification:	C12 - Hypothesis Testing ; C22 - Time-Series Models ; C23 - Models with Panel Data
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005423880