Purchasing Power Parity during Currency Crisis: a Panel Unit root Test under Structural Breaks Approach

B. Candelon, J. Breitung*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review


We investigate the stationarity of real exchange rates using a panel of asian and south and latin american countries by applying a new panel unit root test that is robust to structural breaks due to currency crises. It turns out that the long-run ppp relationship is relevant for the asian countries, which experienced a flexible exchange rate, whereas for the south and latin american countries, for which the exchange rate has been pegged to the u.s. Dollar for a long time, the ppp relationship breaks down. In asian countries ppp appears to hold before the 1997 crisis, which is not the case for the south and latin american countries. This suggests that the “asian flu” corresponds to a second-generation type of crises, whereas the 1995 “mexican tequila” fits the first-generation models better.
Original languageEnglish
Pages (from-to)124-140
JournalWeltwirtschaftliches Archiv-Review of World Economics
Issue number1
Publication statusPublished - 1 Jan 2005

JEL classifications

  • c13 - Estimation: General
  • c33 - "Multiple or Simultaneous Equation Models: Models with Panel Data; Longitudinal Data; Spatial Time Series"
  • e41 - Demand for Money

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