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Purchasing Power Parity In African Countries: Evidence From Panel Suradf Test

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  • Ahmad Zubaidi Baharumshah
  • Evan Lau
  • Mudziviri T. Nziramasanga

Abstract

This study reexamines the validity of long‐run purchasing power parity (PPP) hypothesis using a battery of panel unit root tests for 11 developing countries in Africa over the period 1980‐2007. Based on the conventional panel unit root tests, we found evidence that the monthly real exchange rates in these countries were mean reverting. By contrast, the series‐specific unit root test proposed by Breuer et al. (SURADF) reveals that only six of the 11 RERs series were stationary using the US dollar as reference currency. Additionally, our results reveal that there is stronger evidence of the parity condition with the Rand‐based rates than in the other currency‐based rates like the US dollar or Euro. We conclude that PPP holds in some, but not all, of the African countries according to the SURADF tests.

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  • Ahmad Zubaidi Baharumshah & Evan Lau & Mudziviri T. Nziramasanga, 2010. "Purchasing Power Parity In African Countries: Evidence From Panel Suradf Test," South African Journal of Economics, Economic Society of South Africa, vol. 78(1), pages 40-56, March.
    • Handle: RePEc:bla:sajeco:v:78:y:2010:i:1:p:40-56
    DOI: 10.1111/j.1813-6982.2010.01231.x
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    3. Riané de Bruyn & Rangan Gupta & Lardo Stander, 2013. "Testing the Monetary Model for Exchange Rate Determination in South Africa: Evidence from 101 Years of Data," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 7(1), March.
    4. Njindan Iyke, Bernard, 2015. "Real Exchange Rates Persistence in the West African Monetary Zone: A Revisit of the PPP Puzzle," MPRA Paper 67282, University Library of Munich, Germany.
    5. E. N. Gyamfi & E. F. Appiah, 2019. "Further evidence on the validity of purchasing power parity in selected African countries," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 43(2), pages 330-343, April.
    6. Chang, Tsangyao & Lee, Chia-Hao & Chou, Pei-I & Tang, Dai-Piao, 2011. "Revisiting long-run purchasing power parity with asymmetric adjustment for G-7 countries," Japan and the World Economy, Elsevier, vol. 23(4), pages 259-264.
    7. Su, Chi-Wei & Tsangyao, Chang & Chang, Hsu-Ling, 2011. "Purchasing power parity for fifteen Latin American countries: Stationary test with a Fourier function," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 839-845, October.

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