A re-examination of the Purchasing Power Parity using non-stationary dynamic panel methods : a comparative approach for developing and developed countries

Abstract

The aim of this paper is to apply recent advances in the econometrics of non-stationary dynamic panel methods to examine the robustness of the PPP concept for a sample of 73 developed and developing countries. Our investigations indicate that the strong PPP is verified for OECD and MENA countries. However in Africa, Asia, Latin America and the PECO, PPP does not seem relevant to characterize the long-run behavior of the real exchange rate. A widening of our analysis field shows that the nature of the exchange rate regime doesn’t condition the validity of the PPP and that the PPP is more easily accepted in countries with high inflation than with low one.