Purchasing Power Parity and aggregation bias for a developing country: The case of Mexico

Raymond Robertson, Anil Kumar, Donald H. Dutkowsky

Research output: Contribution to journalArticlepeer-review

9 Scopus citations

Abstract

This paper investigates long-run Purchasing Power Parity (PPP) between the US and Mexico. We use a panel of disaggregated price data between the US and Mexico with a long time series to look at two types of aggregation bias. The first is examined in Imbs et al. - which we refer to as estimator aggregation bias - and the second is put forth by Broda and Weinstein - hereafter, data aggregation bias. The findings indicate substantial estimator aggregation bias and data aggregation bias. Although estimates using aggregate data and imposing homogeneous coefficients provide little evidence of PPP, findings with disaggregated data and heterogeneous coefficient estimators offer strong support. The results also suggest the presence of small-sample bias as examined in Chen and Engel, but with little effect on the qualitative results. Tradable goods and non-tradable goods show little distinction in convergence rates. Estimated half-lives are lower under flexible than fixed exchange rates and indicate rapid convergence during the Mexican peso crisis.

Original languageEnglish (US)
Pages (from-to)237-243
Number of pages7
JournalJournal of Development Economics
Volume90
Issue number2
DOIs
StatePublished - Nov 1 2009

Keywords

  • Aggregation bias
  • Mexico
  • Purchasing Power Parity (PPP)

ASJC Scopus subject areas

  • Development
  • Economics and Econometrics

Fingerprint Dive into the research topics of 'Purchasing Power Parity and aggregation bias for a developing country: The case of Mexico'. Together they form a unique fingerprint.

Cite this