A Re-Examination of the Purchasing Power Parity Using Non-Stationary Dynamic Panel Methods: A Comparative Approach for Developing and Developed Countries

38 Pages Posted: 16 Jul 2003

See all articles by Christophe Rault

Christophe Rault

IZA Institute of Labor Economics; University of Orleans; CESifo (Center for Economic Studies and Ifo Institute)

Imed Drine

Université Paris I Panthéon-Sorbonne - Equipe Universitaire de Recherche en Economie Quantitative (EUREQUA)

Date Written: April 2003

Abstract

The aim of this paper is to apply recent advances in the econometrics of non-stationary dynamic panel methods to examine the robustness of the PPP concept for a sample of 73 developed and developing countries. Our investigations indicate that the strong PPP is verified for OECD and MENA countries. However in Africa, Asia, Latin America and the PECO, PPP does not seem relevant to characterize the long-run behavior of the real exchange rate. A widening of our analysis field shows that the nature of the exchange rate regime doesn't condition the validity of the PPP and that the PPP is more easily accepted in countries with high inflation than with low one.

Keywords: Purchasing power parity, real exchange rate, developed country, developing country, panel unit-root and cointegration tests

JEL Classification: E31, F0, F31, C15

Suggested Citation

Rault, Christophe and Rault, Christophe and Drine, Imed, A Re-Examination of the Purchasing Power Parity Using Non-Stationary Dynamic Panel Methods: A Comparative Approach for Developing and Developed Countries (April 2003). Available at SSRN: https://ssrn.com/abstract=411621 or http://dx.doi.org/10.2139/ssrn.411621

Christophe Rault (Contact Author)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

University of Orleans ( email )

Rue de Blois
BP 6739
LEO, Orleans, Orleans cedex 2 45067
France

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Imed Drine

Université Paris I Panthéon-Sorbonne - Equipe Universitaire de Recherche en Economie Quantitative (EUREQUA) ( email )

106-112 Boulevard de l'Hopital
Paris Cedex 13, 75647
France

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