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The Validity of Purchasing Power Parity Hypothesis for Eleven Middle Eastern Countries

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  • Narayan Paresh K

    (Griffith University)

  • Prasad Biman Chand

    (The University of the South Pacific)

Abstract

There is a large literature that examines purchasing power parity (PPP). The growth in this literature is mainly due to the absence of a consensus view on whether or not PPP holds. This paper considers PPP for 11 Middle Eastern countries using a number of tests: the one-break test unit root, the two-breaks unit root test, and the panel Lagrange multiplier (LM) unit root test with structural breaks. The main finding from univariate tests is that there is evidence for PPP in only seven countries (Lebanon, Saudi Arabia, Egypt, Iran, Syria, Tunisia and Sudan). However, when the panel LM test is applied with two structural breaks, strong evidence is found in favor of PPP for the Middle Eastern countries.

Suggested Citation

  • Narayan Paresh K & Prasad Biman Chand, 2005. "The Validity of Purchasing Power Parity Hypothesis for Eleven Middle Eastern Countries," Review of Middle East Economics and Finance, De Gruyter, vol. 3(2), pages 44-58, August.
    • Handle: RePEc:bpj:rmeecf:v:3:y:2005:i:2:n:3
    DOI: 10.2202/1475-3693.1038
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    2. Ahmad Zubaidi Baharumshah & Siew-Voon Soon, 2012. "Mean reversion in bilateral real exchange rates: evidence from the Malaysian ringgit," Applied Economics, Taylor & Francis Journals, vol. 44(22), pages 2921-2933, August.
    3. Niyati Bhanja & Arif Billah Dar & Aviral Kumar Tiwari, 2015. "Exchange Rate and Monetary Fundamentals: Long Run Relationship Revisited," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 62(1), pages 33-54, March.
    4. Kalyoncu, Huseyin & Kalyoncu, Kahraman, 2008. "Purchasing power parity in OECD countries: Evidence from panel unit root," Economic Modelling, Elsevier, vol. 25(3), pages 440-445, May.
    5. Kalyoncu, Hüseyin & Kula, Ferit & Aslan, Alper, 2010. "The Validity of Purchasing Power Parity Hypothesis in Middle East and Northern Africa Countries," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 125-131, December.
    6. 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.
    7. Nilgün Çil Yavuz, 2009. "Purchasing power parıty with multiple structural breaks: evidence from Turkey," Economics Bulletin, AccessEcon, vol. 29(2), pages 1201-1210.
    8. Hsu-Ling Chang & De-Chih Liu & Chi-Wei Su, 2012. "Purchasing power parity with flexible Fourier stationary test for Central and Eastern European countries," Applied Economics, Taylor & Francis Journals, vol. 44(32), pages 4249-4256, November.
    9. Paresh Kumar Narayan & Biman Chand Prasad, 2008. "Are shocks to real effective exchange rates permanent or transitory? Evidence from Pacific Island countries," Applied Economics, Taylor & Francis Journals, vol. 40(8), pages 1053-1060.
    10. Lean Hooi Hooi & Russell Smyth, 2007. "Are Asian real exchange rates mean reverting? Evidence from univariate and panel LM unit root tests with one and two structural breaks," Applied Economics, Taylor & Francis Journals, vol. 39(16), pages 2109-2120.
    11. M.Abimbola OYINLOLA & Luwatosin ADENIYI & Nd Festus O.EGWAIKHIDE*, 2011. "Purchasing Power Parity Hypothesis in the Selected African Countries," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 21, pages 93-110.
    12. Asuamah Yeboah, Samuel, 2017. "Is purchasing power parity hypothesis valid in Ghana? An empirical assessment," MPRA Paper 99394, University Library of Munich, Germany.
    13. Zahra (Mila) Elmi & Omid Ranjbar, 2010. "Purchasing Power Parity Hypothesis in OIC Countries: Evidence from Panel Unit Root Tests with Heterogeneous Structural Breaks," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 15(3), pages 1-12, fall.

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