PPP in OECD Countries: An Analysis of Real Exchange Rate Stationarity, Cross-sectional Dependency and Structural Breaks

Arbeitspapier

The stationarity of OECD real exchange rates over the period 1972-2008 is tested using a panel of twenty six member countries. The methodology followed stems from the need to meet several key concerns: (i) the identification of which panel members are stationary; (ii) the presence of cross-sectional dependence among the countries in the panel; and (iii) the identification of potential structural breaks that might have occurred at different points in time. To address these concerns, we employ a recent test that examines the time series properties of the data within a panel framework, namely the Hadri and Rao (2008) panel stationarity test. The real exchange rates of the twenty six OECD countries are found to be stationary when considered as a panel, but only after allowing for endogenously-determined structural breaks and cross section dependence. We also find that once these structural breaks are removed from the underlying series, the half-life of shocks to the real exchange rate is much shorter than has been calculated in earlier studies.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 1135

Classification and Topics

• Classification: Wirtschaft ; Foreign Exchange ; International Monetary Arrangements and Institutions ; International Financial Markets
• Subject: Heterogeneous dynamic panels ; purchasing power parity ; mean reversion ; panel stationarity test ; Kaufkraftparität ; Panel ; Stochastischer Prozess ; Statistischer Test ; OECD-Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Holmes, Mark J. ; Otero, Jesús ; Panagiotidis, Theodore
• Event: Veröffentlichung
• (who): Koç University-TÜSİAD Economic Research Forum (ERF)
• (where): Istanbul
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/108580
• Last update: 10.03.2025, 11:45 AM CET