Does "aggregation bias" explain the PPP puzzle?
By: Shiu-Sheng Chen, Charles Engel.
Contributors: White, Michelle J.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10304; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10304.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Purchasing power parity.
Description: "Recently, Imbs ... [et al.]  (2002) have claimed that much of the purchasing power parity puzzle can be explained by aggregation bias'.  This paper re-examines aggregation bias.  First, it clarifies the meaning of aggregation bias and its applicability to the PPP puzzle.  Second, the size of the bias' is shown to be much smaller than the simulations in Imbs et.  al.  (2002) suggest, if we rule out explosive roots in the simulations.  Third, we show that the presence of non-persistent measurement error especially in the Imbs ... [et al.]  (2002) data can make price series appear less persistent than they really are.  Finally, it is now standard to recognize that small-sample bias plagues estimates of speeds of convergence of PPP.  After correcting small sample bias by methods proposed by Kilian (1998) and by So and Shin (1999), the half-life estimates indicate that heterogeneity and aggregation bias do not help to solve the PPP puzzle"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
Title from PDF file as viewed on 1/26/2005.
Also available in print.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.