Evidence of purchasing power parity for the floating regime period

This paper investigates the PPP hypothesis within industrialized countries for the post-Bretton Woods period via two panel unit root tests, the DF–GLS–SUR and the ADF–SUR tests, respectively developed by Lopez [A panel unit root with good power in small samples. Econometric Reviews, in press] and Levin et al. [2002. Unit root tests in panel data: asymptotic and finite-sample properties. Journal of Econometrics 108 (1), 1–24]. Both approaches allow for data specific serial and contemporaneous correlation. While both tests provide PPP evidence for the post-1973 period, the more powerful DF–GLS–SUR test demonstrates consistently stronger results, especially for the 1973–1998 period.