Given nominal exchange rates and price data on N + 1 countries indexed by i = 0, 1, 2, ..., N , the standard procedure for testing purchasing power parity (PPP) is to apply unit root or stationarity tests to N real exchange rates all measured relative to a base country, 0, often taken to be the US. Such a procedure is sensitive to the choice of base country, ignores the information in all the other cross rates and is subject to a high degree of cross section dependence which has adverse effects on estimation and inference. In this paper we conduct a variety of unit root tests on all possible N (N + 1)/2 real rates between pairs of the N + 1 countries and estimate the proportion of the pairs that are stationary. This proportion can be consistently estimated even in the presence of cross-section dependence. We estimate this proportion using quarterly data on the real exchange rate for 50 countries over the period 1957-2001. The main substantive conclusion is that to reject the null of no adjustment to PPP requires sufficiently large disequilibria to move the real rate out of the band of inaction set by trade costs. In such cases one can reject the null of no adjustment to PPP up to 90% of the time as compared to around 40% in the whole sample using a linear alternative and almost 60% using a non-linear alternative.JEL Categories: C23, F31, F41

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This paper investigates the effect of the Financial Transaction Tax announcement, 29 December 2012, and the tax introduction, 1 March 2013, on the liquidity and volatility of the affected Italian stocks. The paper examines two-month windows of daily observations before and after each event. To assess the change in liquidity in pre-and post-event samples, the Mann-Whitney U-test for the equality of medians is employed, while for the assessment of volatility change, we apply the Levene test and its modifications for homogeneity of variances. The paper documents that the announcement of the tax positively affects market liquidity, whereas there is a dramatic decrease in liquidity as a result of tax introduction. It implies that the trading costs of the affected equities decrease after the tax announcement and significantly increase after the tax introduction events. As for volatility, the results mainly indicate no statistically significant changes between the pre-and post-tax announcement and introduction events.

This paper studies bivariate tail comovements on financial markets that are of crucial importance for the world economy: The S&P 500, US bonds, and currencies. We propose to study that form of dependence under the lens of cojump identification in a bivariate Brownian semimartingale with idiosyncratic jumps, as well as cojumps. Whereas univariate jump identification has been widely studied in the high-frequency data literature, the multivariate literature on cojump identification is more recent and scarcer. Cojump identification is of interest, as it may identify comovements which are not trivially visible in a univariate setting.That is, price changes can be small relative to local variation, but still abnormal relative to local covariation. This paper investigates how simple parametric bootstrapping of the product of assets' intraday returns can help detect cojumps in a multivariate Brownian semi-martingale with both idiosyncratic jumps and cojumps. In particular, we investigate how to disentangle idiosyncratic jumps from common jumps at an intraday level for pairs of assets. The approach is flexible, trivial to implement, and yields good power properties. It allows to shed new light on extreme dependence at the world economy level.