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
Authors:	Lyhagen, Johan
Publisher:	Stockholm : Stockholm School of Economics, The Economic Research Institute (EFI)
Subject:	Kaufkraftparität \| Unit Root Test \| Theorie \| Dynamic panels \| Monte Carlo \| Purchasing power parity

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Series:	SSE/EFI Working Paper Series in Economics and Finance ; 413
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	333191765 [GVK] hdl:10419/56226 [Handle]
Classification:	C12 - Hypothesis Testing ; C22 - Time-Series Models ; C23 - Models with Panel Data
Source:	EconStor

Persistent link: https://www.econbiz.de/10010281460