Unit roots and purchasing power parity: another kick at the can
Lopez et al. (2005) demonstrated that single-equation unit-root tests cannot provide conclusive evidence of whether real exchange rates are stationary because inference depends critically on the lag-lengths used to construct the test statistics, a result reinforced by a recent work by Sweeney (2006). The purpose of this article is to revisit the issue, first demonstrating the necessary conditions under which this approach of testing for Purchasing Power Parity (PPP) is appropriate.
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Document Type: Research Article
Affiliations: School of Business, Queen's University, Kingston, Ontario, Canada
Publication date: 2010-11-01