Abstract
The PPP puzzle is named as one of six major puzzles in international macroeconomics. IMRR (2005a) point out to the aggregation bias of price with heterogeneous adjustment dynamics as a solution to the puzzle. This paper investigates whether this result is supported for Brazilian cities data using a dynamic CCEMG estimator with half-panel jackknife bias correction to mitigate the small sample time series bias proposed by Chudik and Pesaran (2015)Chudik, A.; Pesaran, M. H. 2015. “Common Correlated Effects Estimation of Heterogeneous Dynamic Panel Data Models with Weakly Exogenous Regressors.” Journal of Econometrics 188, no.2: 393-420.. The results corroborate the IMRR’s (2005a) evidence, with a median half-life of 13.5 months.
Keywords:
Aggregation Bias; Half-life; PPP Puzzle