Im, Lee, and Enders (2008) use stationary instrumental variables in tests for cointegrating relationships. Consequently, the t-statistics are asymptotically standard normal so that the critical values of the normal distribution may be used to assess significance and the nuisance parameter problem is avoided. Using an updated version of the Taylor (2002) data set, the ILE approach is applied to three well-known single equation alternatives in testing for purchasing power parity. The regressions with instruments provide evidence of PPP for some countries but the empirical results differ across tests and, sometimes, with the choice of instrument.
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