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Price Level Convergence, Purchasing Power Parity and Multiple Structural Breaks in Panel Data Analysis: An Application to U.S. Cities

Author

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  • Basher Syed A.

    (Qatar Central Bank)

  • Carrion-i-Silvestre Josep Lluís

    (University of Barcelona)

Abstract

This article provides a methodological and empirical approach for assessing price level convergence and its relation to purchasing power parity (PPP) using annual price data for seventeen U.S. cities during the period 1918 to 2005. We suggest a new panel data procedure that can handle a wide range of PPP concepts in the presence of multiple structural breaks using all possible pairs of real exchange rates. Testing for PPP requires the definition of parametric restrictions (parity restrictions) across regimes. In general, we find more evidence for stationarity when the parity restriction is not imposed, while imposing parity restriction leads toward the rejection of the panel stationarity. Our results can be embedded in the view of the Balassa-Samuelson approach, but where the slope of the time trend is allowed to change in the long-run.

Suggested Citation

  • Basher Syed A. & Carrion-i-Silvestre Josep Lluís, 2009. "Price Level Convergence, Purchasing Power Parity and Multiple Structural Breaks in Panel Data Analysis: An Application to U.S. Cities," Journal of Time Series Econometrics, De Gruyter, vol. 1(1), pages 1-38, April.
    • Handle: RePEc:bpj:jtsmet:v:1:y:2009:i:1:n:3
    DOI: 10.2202/1941-1928.1000
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    3. Christina Christou & Juncal Cunado & Rangan Gupta, 2019. "Price Convergence Patterns across U.S. States," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 66(2), pages 187-201.
    4. Ceyhun Can Ozcan & Ahmet Sahbaz & Ugur Ad?guzel & Saban Nazlioglu, 2014. "The Nature of Shocks to Turkish exchange rates: what panel approach says?," Proceedings of Economics and Finance Conferences 0401591, International Institute of Social and Economic Sciences.
    5. repec:qut:auncer:2013_01 is not listed on IDEAS
    6. He, Huizhen & Ranjbar, Omid & Chang, Tsangyao, 2013. "Purchasing power parity in transition countries: Old wine with new bottle," Japan and the World Economy, Elsevier, vol. 28(C), pages 24-32.
    7. Chang, Tsangyao & Chu, Hsiao-Ping & Ranjbar, Omid, 2014. "Are GDP fluctuations transitory or permanent in African countries? Sequential Panel Selection Method," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 380-399.
    8. Syed Basher & Josep Carrion-i-Silvestre, 2011. "Measuring persistence of U.S. city prices: new evidence from robust tests," Empirical Economics, Springer, vol. 41(3), pages 739-745, December.
    9. Hegwood, Natalie D. & Nath, Hiranya K., 2013. "Structural breaks and relative price convergence among US cities," Journal of Macroeconomics, Elsevier, vol. 36(C), pages 150-160.
    10. Pauwels Laurent L. & Chan Felix & Mancini Griffoli Tommaso, 2012. "Testing for Structural Change in Heterogeneous Panels with an Application to the Euro's Trade Effect," Journal of Time Series Econometrics, De Gruyter, vol. 4(2), pages 1-35, November.
    11. Adiguzel, Ugur & Sahbaz, Ahmet & Ozcan, Ceyhun Can & Nazlioglu, Saban, 2014. "The behavior of Turkish exchange rates: A panel data perspective," Economic Modelling, Elsevier, vol. 42(C), pages 177-185.
    12. Sonora, Robert, 2010. "Asymmetries in New Keynesian Phillips Curves: Evidence from US Cities," MPRA Paper 24650, University Library of Munich, Germany.
    13. R dvan Karacan & Zisan Kilickan, 2018. "Investigation the Correlation between Purchasing Power Parity, Per Capita Gross Domestic Product and the Price Level Indices with Panel Data Analysis: Evidence from New Zealand, USA, Germany, Canada a," International Journal of Economics and Financial Issues, Econjournals, vol. 8(6), pages 15-19.
    14. Ho-Chuan Huang & Pei-Chien Lin & Chih-Chuan Yeh, 2011. "Price level convergence across cities? Evidence from panel unit root tests," Applied Economics Letters, Taylor & Francis Journals, vol. 18(1), pages 87-93.

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