For which countries did PPP hold? A multiple testing approach
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Date
2006-12-15T11:22:43Z
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Abstract
We use recent advances in multiple testing to identify the countries for
which Purchasing Power Parity (PPP) held over the last century. The approach
controls the multiplicity problem inherent in simultaneously testing
for PPP on several time series, thereby avoiding spurious rejections. It has
higher power than traditional multiple testing techniques by exploiting the
dependence structure between the countries with a bootstrap approach. We
use a sieve bootstrap approach to account for nonstationarity under the null
hypothesis. Our empirical results show that, plausibly, controlling for multiplicity
in this way leads to a number of rejections of the null of no PPP that is
intermediate between that of traditional multiple testing techniques and that
which results if one tests the null on each single time series at some level alpha.
JEL Classification: C12, C23, F31
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Keywords
Bootstrap, Multiple testing, Panel data, Purchasing Power Parity (PPP)