Are PPP tests erratically behaved? : some panel evidence

This paper examines whether, in addition to standard unit root and cointegration tests, panel approaches also produce test statistics behaving erratically when applied to tests for PPP. We show that if appropriate tests (which are robust to cross-sectional dependence and more powerful than single time series tests) are used, any evidence of erratic behaviour disappears, and strong empirical support is found for PPP. It appears therefore that recent advances in panel data econometrics might enable us to settle the PPP debate.