We show that the use of the real effective exchange rate to test for purchasing power parity, as in Astorga (2012) and other studies, is subject to a problem that biases tests against finding evidence of PPP. The problem is illustrated using Astorga´s data on six Latin American countries.

Spurious regression phenomenon has been recognized for a wide range of Data Generating Processes: driftless unit roots, unit roots with drift, long memory, trend and broken-trend stationarity, etc. The usual framework is Ordinary Least Squares. We show that the spurious phenomenon also occurs in...

The spurious regression phenomenon in Least Squares occurs for a wide range of Data Generating Processes, such as driftless unit roots, unit roots with drift, long memory, trend and broken-trend stationarity. Indeed, spurious regressions have played a fundamental role in the building of modern...

Whilst the existence of a unit root implies that current shocks have permanent effects, in the long run, the simultaneous presence of a deterministic trend obliterates that consequence. As such, the long-run level of macroeconomic series depends upon the existence of a deterministic trend. This...

Spurious regression phenomenon has been recognized for a wide range of Data Generating Processes: driftless unit roots, unit roots with drift, long memory, trend and broken-trend stationarity, etc. The usual framework is Ordinary Least Squares. We show that the spurious phenomenon also occurs in...