Pynnönen, Seppo and Juuso Vataja (1999). PPP during the present float. Further evidence using efficient tests. Proceedings of the University of Vaasa, Discussion Papers. 261

A major problem in studies concerning purchasing power parity is the lack of efficient testing procedures for inference in short samples. Their paper compares the results of DF-GLS (Elliot, Rosenberg and Stock 1996) and MZt (Perron an Ng 1996) tests, accompanied with Ng and Perron's (1998) selection criterion for a lag length, on locally detrended real exchange rate series to test the validity of PPP. Our results show that the above tests support considerably more frequently the PPP compared to traditional ADF and PP, and that the automated model selection criterion works well in selecting the lag length in the Dickey-Fuller regression.

Seppo Pynnönen, Professor of Statistics, Department of Mathematics and Statistics, University of Vaasa, P.O.Box 700, FIN-65101 Vaasa, Finland

Juuso Vataja, Professor of Economics, Department of Economics, University of Vaasa P.O.Box 700, FIN-65101 Vaasa, Finland