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Purchasing Power Parity under Regime Shifts: An Application to Asian Countries

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  • Salah A. Nusair

Abstract

This paper re-examines the long-run purchasing power parity (PPP) relationship for nine Asian countries relative to the USA and Japan during a period containing significant structural breaks. The relevance of considering structural breaks in PPP tests is demonstrated by utilizing the Johansen et�al. (2000) procedure that allows for up to two pre-determined structural breaks. Using conventional tests without considering breaks, one is able to reject the null of no cointegration for only four countries. The Johansen et�al. procedure clearly demonstrates the importance of allowing for structural breaks and provides strong support for long-run PPP for all the countries, regardless of the base country, except in the case of the Philippines vis-à-vis Japan. The Hansen-Johansen parameter constancy test indicates stability for all the countries except the Philippines relative to the USA and Malaysia relative to Japan. Copyright 2008 The Author. Journal compilation 2008 East Asian Economic Association and Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by East Asian Economic Association in its journal Asian Economic Journal.

Volume (Year): 22 (2008)
Issue (Month): 3 (09)
Pages: 241-266

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Handle: RePEc:bla:asiaec:v:22:y:2008:i:3:p:241-266

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Cited by:
  1. Salah Nusair, 2012. "Nonlinear adjustment of Asian real exchange rates," Economic Change and Restructuring, Springer, vol. 45(3), pages 221-246, August.
  2. Kisswani, Khalid/ M. & Nusair, Salah/ A., 2011. "Non-linear convergence in Asian interest rates and inflation rates," MPRA Paper 34179, University Library of Munich, Germany.

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