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Price level convergence, purchasing power parity and multiple structural breaks: an application to US cities
Basher, Syed A.; Carrión i Silvestre, Josep Lluís
Xarxa de Referència en Economia Aplicada (XREAP)
This article provides a fresh methodological and empirical approach for assessing price level convergence and its relation to purchasing power parity (PPP) using annual price data for seventeen US cities. We suggest a new procedure that can handle a wide range of PPP concepts in the presence of multiple structural breaks using all possible pairs of real exchange rates. To deal with cross-sectional dependence, we use both cross-sectional demeaned data and a parametric bootstrap approach. In general, we find more evidence for stationarity when the parity restriction is not imposed, while imposing parity restriction provides leads toward the rejection of the panel stationar- ity. Our results can be embedded on the view of the Balassa-Samuelson approach, but where the slope of the time trend is allowed to change in the long-run. The median half-life point estimate are found to be lower than the consensus view regardless of the parity restriction.
2008
311 - Estadística
33 - Economia
Convergència econòmica
Paritat dels poders adquisitius
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51 p.
Working Paper
Xarxa de Referència en Economia Aplicada (XREAP)
Reproducció digital del document publicat en format paper
XREAP;2008-08
         

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