Purchasing Power Parity during Currency Crises: A Panel Unit Root Test under Structural Breaks
نویسندگان
چکیده
In this paper the relevance of the PPP as a long-run relationship is studied using a panel of Latin American and Asian countries. We investigate the stationarity of real exchange rates by applying a new panel unit root test that is robust to structural breaks due to currency crises. It turns out that the long-run PPP relationship is relevant for the Asian countries, which experienced a flexible exchange rate, whereas for the South and Latin American countries, for which the exchange rate has been pegged to the US dollar for a long time, the PPP relationship breaks down. This result stresses the role of the exchange rate regime for the relevance of the PPP relationship. Furthermore, in Asian countries PPP appears to hold before the 1997 crisis, which is not the case for the South and Latin American countries. This result provides information on the type of crises, which has affected these countries: The Asian flue corresponds more to a second generation type of crises, whereas the 1995 Mexican Tequila fits to the first generation models.
منابع مشابه
Purchasing Power Parity Hypothesis In OIC Countries: Evidence From Panel Unit Root Tests With Heterogeneous Structural Breaks
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