Revisiting purchasing power parity in Latin America: sequential panel selection method

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Abstract:

This study applies the Sequential Panel Selection Method (SPSM), proposed by Chortareas and Kapetanios (2009) to test the validity of long-run purchasing power parity (PPP) in a sample of 15 Latin American countries using monthly data spanning from December 1994 to February 2010. SPSM classifies the whole panel into a group of stationary and nonstationary series. In doing so, we can clearly identify how many and which series in the panel are stationary processes. Empirical results from the SPSM using the Panel KSS unit root test (Ucar and Omay, 2009) with a Fourier function which accounts for any structural break in the data indicate that PPP holds in many of the Latin American countries studied.

Keywords: C22; F31; Fourier function; Latin American; PPP; Sequential Panel Selection Method

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036846.2013.795279

Affiliations: 1: Department of Economics, The Center for Research on International Economics, University of Wisconsin-Milwaukee, Milwaukee, USA 2: Department of Finance, Feng Chia University, Taichung, Taiwan 3: Division of International Banking and Finance Studies, Texas A&M International University, Laredo, Texas, USA

Publication date: November 1, 2013

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