Abstract
We employ a multiple testing technique to identify the countries for which purchasing power parity (PPP) held over the last century. The approach controls the multiplicity problem inherent in simultaneously testing for PPP on several time series, thereby avoiding spurious rejections. It has higher power than traditional multiple testing techniques by exploiting the dependence structure between the countries with a bootstrap approach. Our results show that, plausibly, thus controlling for multiplicity leads to a number of rejections of the null that is intermediate between that of traditional multiple testing techniques and that which results if one tests the null on each single time series at some level α.
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Acknowledgments
I am indebted to two anonymous referees and an associate editor whose remarks substantially improved the paper as well as to Alan Taylor for providing the dataset used in this paper. I amgrateful to conference participants at Journée d’économétrie, Paris,DIWMacroeconometricWorkshop, Berlin, Italian Congress of Econometrics, Rimini, and Verein für Socialpolitik, München, as well as seminar participants at Universities of Dortmund, Münster, and Maastricht, for helpful discussion.
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Research supported by Ruhr Graduate School in Economics and DFG under Sonderforschungsbereich 475.
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Open Access This is an open access article distributed under the terms of the Creative Commons Attribution Noncommercial License (https://creativecommons.org/licenses/by-nc/2.0), which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
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Hanck, C. For which countries did PPP hold? A multiple testing approach. Empir Econ 37, 93–103 (2009). https://doi.org/10.1007/s00181-008-0224-z
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DOI: https://doi.org/10.1007/s00181-008-0224-z