NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Shiu-Sheng Chen

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Working Papers

February 2004Does "Aggregation Bias" Explain the PPP Puzzle?
with Charles Engel: w10304
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 ...

Published: Chen, Shiu-Sheng and Charles Engel. "Does' Aggregation Bias' Explain The PPP Puzzle?," Pacific Economic Review, 2005, v10(1,Feb), 49-72. citation courtesy of

Contact and additional information for this authorAll NBER papers and publicationsNBER Working Papers onlyInformation about this author at RePEc

 
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