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"Aggregation Bias" DOES explain the PPP puzzle

Imbs, J.; Mumtaz, H.; Ravn, M.O.; Rey, H.; (2005) "Aggregation Bias" DOES explain the PPP puzzle. (NBER Working Papers 11607). National Bureau of Economic Research: Cambridge, US. Green open access

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Abstract

This article summarizes our views on the role of an "aggregation bias" in explaining the PPP Puzzle, in response to the several papers recently written in reaction to our initial contribution. We discuss in particular the criticisms of Imbs, Mumtaz, Ravn and Rey (2002) presented in Chen and Engel (2005). We show that their contentions are based on: (i) analytical counter-examples which are not empirically relevant; (ii) simulation results minimizing the extent of "aggregation bias"; (iii) unfounded claims on the impact of measurement errors on our results; and (iv) problematic implementation of small-sample bias corrections. We conclude, as in our original paper, that "aggregation bias" goes a long way towards explaining the PPP puzzle.

Type: Working / discussion paper
Title: "Aggregation Bias" DOES explain the PPP puzzle
Open access status: An open access version is available from UCL Discovery
Publisher version: http://www.nber.org/papers/w11607
Language: English
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/18845
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