Quarterly Journal of Econometrics Research

Published by: Conscientia Beam
Online ISSN: 2411-0523
Print ISSN: 2518-2536
Quick Submission    Login/Submit/Track

No. 1

Purchasing Power Parity Hold in Major SAARC Countries? Panel Cointegration Analysis

Pages: 1-16
Find References

Finding References

Purchasing Power Parity Hold in Major SAARC Countries? Panel Cointegration Analysis

Search :
Google Scholor
Search :
Microsoft Academic Search

DOI: 10.18488/journal.88.2019.51.1.16

Rashid Mehmood , Muhammad Zeeshan Younas

Export to    BibTeX   |   EndNote   |   RIS

Ahmed, M., 2005. Purchasing power parity based on capital account, exchange rate volatility and cointegration: Evidence from some developing countries. Applied Econometrics and International Development, 5(3): 1-12.

Arize, A.C., J. Malindretos and D. Ghosh, 2015. Purchasing power parity-symmetry and proportionality: Evidence from 116 countries. International Review of Economics & Finance, 37: 69-85.

Bahmani, O.M., T. Chang and T.-P. Wu, 2015. Purchasing power parity in transition countries: Panel stationary test with smooth and sharp breaks. International Journal of Financial Studies, 3(2): 153-161.Available at: https://doi.org/10.3390/ijfs3020153.

Bhatti, R.H., 2000. On purchasing power parity between Pakistan and other Asian countries. Pakistan Economic and Social Review: 1-15.

Cassel, G., 1916. The present situation of the foreign exchanges. The Economic Journal, 26(101): 62-65.Available at: https://doi.org/10.2307/2222038.

Chang, H.-L., C.-W. Su, M.-N. Zhu and P. Liu, 2010. Long-run purchasing power parity and asymmetric adjustment in BRICs. Applied Economics Letters, 17(11): 1083-1087.Available at: https://doi.org/10.1080/00036840902817458.

Chang, T., C.W. Su and C.H. Lee, 2012. Purchasing power parity nonlinear threshold unit root test for East-Asian countries. Applied Economics Letters, 19(10): 975-979.Available at: https://doi.org/10.1080/13504851.2011.608641.

Chortareas, G. and G. Kapetanios, 2009. Getting PPP right: Identifying mean-reverting real exchange rates in panels. Journal of Banking & Finance, 33(2): 390-404.Available at: https://doi.org/10.1016/j.jbankfin.2008.08.010.

Cuestas, J.C. and P.J. Regis, 2013. Purchasing power parity in OECD countries: Nonlinear unit root tests revisited. Economic Modelling, 32: 343-346.Available at: https://doi.org/10.1016/j.econmod.2013.01.035.

Dimitriou, D. and T. Simos, 2013. Testing purchasing power parity for Japan and the US: A structural-break approach. Japan and the World Economy, 28: 53-59.Available at: https://doi.org/10.1016/j.japwor.2013.07.001.

Enders, W. and P.L. Siklos, 2001. Cointegration and threshold adjustment. Journal of Business & Economic Statistics, 19(2): 166-176.

Gregory, A.W. and B.E. Hansen, 1996. Residual-based tests for cointegration in models with regime shifts. Journal of Econometrics, 70(1): 99-126.Available at: https://doi.org/10.1016/0304-4076(69)41685-7.

Harvey, D.I., S.J. Leybourne and B. Xiao, 2008. A powerful test for linearity when the order of integration is unknown. Studies in Nonlinear Dynamics & Econometrics, 12(3): 1-24.Available at: https://doi.org/10.2202/1558-3708.1582.

He, H. and T. Chang, 2013. Purchasing power parity in transition countries: Sequential panel selection method. Economic Modelling, 35: 604-609.Available at: https://doi.org/10.1016/j.econmod.2013.08.021.

Hoque, A. and R. Banerjee, 2014. The stationarity of South Asian real exchange rates allowing for structural breaks. Australasian Accounting, Business and Finance Journal, 8(3): 45-54.Available at: https://doi.org/10.14453/aabfj.v8i3.4.

Im, K.S., M.H. Pesaran and Y. Shin, 2003. Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115(1): 53-74.Available at: https://doi.org/10.1016/s0304-4076(03)00092-7.

Janjua, S.A. and E. Ahmad, 2006. Tests of purchasing power parity for South Asian countries. Pakistan Economic and Social Review, 44(2): 235-243.

Kao, C., 1999. Spurious regression and residual-based tests for cointegration in panel data. Journal of Econometrics, 90(1): 1-44.Available at: https://doi.org/10.1016/s0304-4076(98)00023-2.

Kasman, S., A. Kasman and D. Ayhan, 2010. Testing the purchasing power parity hypothesis for the new member and candidate countries of the European Union: Evidence from lagrange multiplier unit root tests with structural breaks. Emerging Markets Finance and Trade, 46(2): 53-65.

Khan, M.A. and A. Qayyum, 2007. Exchange rate determination in Pakistan: Evidence based on purchasing power parity theory. Pakistan Economic and Social Review, 45(2): 181-202.

Kim, H. and Y.-K. Moh, 2010. A century of purchasing power parity confirmed: The role of nonlinearity. Journal of International Money and Finance, 29(7): 1398-1405.Available at: https://doi.org/10.1016/j.jimonfin.2010.03.014.

Kruse, R., 2011. A new unit root test against ESTAR based on a class of modified statistics. Statistical Papers, 52(1): 71-85.Available at: https://doi.org/10.1007/s00362-009-0204-1.

Lee, J. and M.C. Strazicich, 2004. Minimum LM unit root test with one structural break. Working Papers 04-17, Department of Economics, Appalachian State University.

McCoskey, S. and C. Kao, 1999. Testing the stability of a production function with urbanization as a shift factor. Oxford Bulletin of Economics and Statistics, 61(S1): 671-690.Available at: https://doi.org/10.1111/1468-0084.0610s1671.

Munir, Q. and S.C. Kok, 2015. Purchasing power parity of ASEAN-5 countries revisited: Heterogeneity, structural breaks and cross-sectional dependence. Global Economic Review, 44(1): 116-149.Available at: https://doi.org/10.1080/1226508x.2015.1012091.

Papell, D.H. and R. Prodan, 2006. Additional evidence of long-run purchasing power parity with restricted structural change. Journal of Money, Credit and Banking, 38(5): 1329-1349.Available at: https://doi.org/10.1353/mcb.2006.0073.

Pedroni, P., 1999;2004. Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and Statistics, 61(S1): 653-670.Available at: https://doi.org/10.1111/1468-0084.0610s1653.

Phillips, P.C. and B.E. Hansen, 1990. Statistical inference in instrumental variables regression with i (1) processes. The Review of Economic Studies, 57(1): 99-125.

Rashid, A., 2013. Financial crisis and exchange rates in emerging economies. Business and Economic Horizons, 9(4): 86-96.Available at: https://doi.org/10.15208/beh.2013.24.

Sollis, R., 2009. A simple unit root test against asymmetric STAR nonlinearity with an application to real exchange rates in Nordic countries. Economic Modelling, 26(1): 118-125.Available at: https://doi.org/10.1016/j.econmod.2008.06.002.

Taylor, M.P., 1988. An empirical examination of long-run purchasing power parity using cointegration techniques. Applied Economics, 20(10): 1369-1381.Available at: https://doi.org/10.1080/00036848800000107.

Ucar, N. and T. Omay, 2009. Testing for unit root in nonlinear heterogeneous panels. Economics Letters, 104(1): 5-8.Available at: https://doi.org/10.1016/j.econlet.2009.03.018.

Yahya, M.H., A. Bany-Ariffin and A.R.A. HADI, 2011. Revisiting the test of purchasing power parity and structural breaks of East Asian countries. International Journal of Economics and Management, 5(1): 333-350.

Yunus, M., 2000. The validity of long-run purchasing power parity in the South Asian countries. Bangladesh Development Studies, 26(1): 99-124.

Zhou, S., M. Bahmani-Oskooee and A.M. Kutan, 2008. Purchasing power parity before and after the Adoption of the Euro. Review of World Economics, 144(1): 134-150.

No any video found for this article.
Rashid Mehmood , Muhammad Zeeshan Younas (2019). Purchasing Power Parity Hold in Major SAARC Countries? Panel Cointegration Analysis. Quarterly Journal of Econometrics Research, 5(1): 1-16. DOI: 10.18488/journal.88.2019.51.1.16
In an effort to provide a better understanding of the large variation in price levels between countries, this paper examines the validity of the purchasing power parity (PPP) hypothesis using monthly data of SAARC countries over the period of 2000-2017. We utilized four econometric tests to examine the existence of this hypothesis in the understudy region. Panel results show that PPP seems to be moderately held in a panel of SAARC, while in the country by country analysis we find partial support of PPP for all economies. We also find that the price and exchange rate have a long-run relationship while ECM analysis shows that the exchange rate and price differential are correlated in the short run, and price and exchange rate have bidirectional causality relationship. In addition, the dummy variable analysis shows that the Global Financial Crisis 2007-08 significantly affect the SAARC countries exchange rate in terms of depreciation. However, these types of external shocks do not have any permanent effect on the real exchange rate and other things remaining the same, no active policy intervention is warranted for the sustainability of external balance.
Contribution/ Originality
This contributes to the existing literature by estimating the long-run parameters and short-run dynamics to check the speed of adjustments towards the long-run equilibrium.