TY  - BOOK
AU  - Chen,Shiu-Sheng
AU  - Engel,Charles
ED  - National Bureau of Economic Research.
TI  - Does "Aggregation Bias" Explain the PPP Puzzle?
T2  - NBER working paper series
PY  - 2004///
CY  - Cambridge, Mass.
PB  - National Bureau of Economic Research
N1  - February 2004; Hardcopy version available to institutional subscribers
N2  - 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 by So and Shin (1999), the half-life estimates indicate that heterogeneity and aggregation bias do not help to solve the PPP puzzle
UR  - https://www.nber.org/papers/w10304
UR  - http://dx.doi.org/10.3386/w10304
ER  -