The European Union currencies and the US dollar: from post-Bretton-Woods to the Euro

Gadea, Marı́a Dolores; Montañés, Antonio; Reyes, Marcelo

doi:10.1016/s0261-5606(04)00083-x

Cited by 31 publications

(14 citation statements)

References 76 publications

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“…Similar explanations for why PPP does not seem to hold have been put forth by for example Gadea et al . (2004) and Sabatè et al .…”

supporting

confidence: 76%

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Testing for Unit Roots in Panel Time‐series Models With Multiple Level Breaks*

Westerlund

2012

The Manchester School

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This paper proposes two new unit root tests that are appropriate in the presence of an unknown number of structural breaks in the level of the data. One is based on a single time series and the other is based on a panel of multiple series. For the estimation of the number of breaks and their locations, a simple procedure based on outlier detection is proposed. The limiting distributions of the tests are derived and evaluated in small samples using simulation experiments. The implementation of the tests is illustrated using as an example purchasing power parity.

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“…Similar explanations for why PPP does not seem to hold have been put forth by for example Gadea et al . (2004) and Sabatè et al .…”

supporting

confidence: 76%

“…4 4 Similarly, Gadea et al . (2004) propose a test for the joint hypothesis of a unit root and no breaks, with which they find evidence of a stationary real exchange rate suggesting that PPP holds.…”

mentioning

confidence: 92%

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Testing for Unit Roots in Panel Time‐series Models With Multiple Level Breaks*

Westerlund

2012

The Manchester School

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“…At the second stage of the analysis we adopt the proposal in Perron (1989, 1990a) and allow for a structural break under both the null and alternative hypotheses, an approach that was also used in Gadea et al (2004) to derive a pseudo F ‐test for non‐trending variables and multiple level shifts. Besides, Hatanaka and Koto (1995) considered the case of a structural break that affects both the level and the slope, but they restricted themselves to the known break case.…”

Section: The Statistical Modelsmentioning

confidence: 99%

“…As in the case of the standard DF test statistic, the consideration of structural breaks in the integration analysis involves some deterministic regressors that are irrelevant under the null hypothesis of unit root. This situation was studied by Banerjee et al (1990), and Banerjee et al (1992), among others, and, more recently, in Hatanaka (1996) and Gadea et al (2004), where pseudo F ‐tests that take into account structural breaks were designed. Although all these papers rely on the fundamentals given in Perron (1989, 1990a) they do not exploit all the possibilities.…”

Section: Introductionmentioning

confidence: 99%

Joint hypothesis specification for unit root tests with a structural break

Carrion‐i‐Silvestre

Sansó

2006

The Econometrics Journal

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Summary Several tests based on a t‐ratio have been proposed in the literature to decide the order of integration of a time series allowing for a structural break. However, another approach based on testing a joint hypothesis of unit root and the irrelevance of some nuisance parameters is also feasible. This paper proposes new unit root tests consistent with the presence of a structural break applying this second perspective. Our approach deals both with the case where the break is not allowed under the null hypothesis, and where it is allowed. Simulations investigate the performance of this proposal compared to the existing tests and show important gains in terms of power.

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Aggregation is not the solution: the PPP puzzle strikes back

Gadea

Mayoral

2009

J of Applied Econometrics

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The Purchasing Power Parity (PPP) Puzzle refers to the difficulty of reconciling the enormous short-run variability of real exchange rates with their longer-than-expected deviations from equilibrium (Rogoff, 1996). Recently, Imbs, Mumtaz, Ravn and Rey (2005, hereinafter IMRR) have argued that much of the PPP puzzle is due to upwardly-biased estimates of persistence. According to their view, the source of the bias is the existence of heterogeneous price adjustment dynamics at the sectoral level. As they put it, "the aggregate real exchange rate is persistent because its components have heterogeneous dynamics". This paper re-examines this claim in two steps. Firstly, we demonstrate that IMRR's measures of sectoral persistence are systematically downwardly-biased because they are based on an inaccurate definition of the "average" Impulse Response Function (IRF). We then show that standard estimates of shock persistence are recovered after this bias is corrected. Secondly, building on the results in Mayoral (2007), that prove that aggregate and micro models induce similar shock persistence behavior, we show that estimates based on aggregate and sectoral exchange rates are in fact highly compatible. Therefore, aggregation does not solve the puzzle and further research is still necessary.JEL classification: C22, F31, O11.

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The European Union currencies and the US dollar: from post-Bretton-Woods to the Euro

Cited by 31 publications

References 76 publications

Testing for Unit Roots in Panel Time‐series Models With Multiple Level Breaks*

Testing for Unit Roots in Panel Time‐series Models With Multiple Level Breaks*

Joint hypothesis specification for unit root tests with a structural break

Aggregation is not the solution: the PPP puzzle strikes back

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