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Half-Life Deviations from PPP in the South African Development Community (SADC)

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  • Thabo M. Mokoena

    ()

  • Gupta, R.

    ()

  • Van Eyden, R.

Abstract

This paper utilises various recently developed econometric methods to obtain better approximations to the half-life for real exchange rates of ten South African Development Community (SADC) countries and to generate confidence intervals for half-life deviations from the purchasing power parity (PPP). The robust methods of Stock (1991), Elliott and Stock (2001), and Hansen (1999) imply that point estimates of less than 36 months exist, making them compatible with PPP. However, the results of ADF and ADF-GLS tests render the SADC real exchange rates as nonstationary processes, a result that is patently at odds with mean-reversion, implying at the same time the possibility of infinite half-lives. Therefore the empirical results appearing in this paper do not convincingly resolve the half-life version of the PPP puzzle and leaves room for future research in the directions of non-parametric methods and median unbiased confidence intervals.

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Bibliographic Info

Article provided by Euro-American Association of Economic Development in its journal Applied Econometrics and International Development.

Volume (Year): 9 (2009)
Issue (Month): 1 ()
Pages:

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Handle: RePEc:eaa:aeinde:v:9:y:2009:i:1_12

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Related research

Keywords: PPP; Half-life; Real Exchange Rates;

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References

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  1. Thabo m. Mokoena & Rangan Gupta & ReneƩ Van eyden, 2009. "Testing For Ppp Using Sadc Real Exchange Rates," South African Journal of Economics, Economic Society of South Africa, vol. 77(3), pages 351-362, 09.
  2. Kim, Jae H. & Silvapulle, Param & Hyndman, Rob J., 2007. "Half-life estimation based on the bias-corrected bootstrap: A highest density region approach," Computational Statistics & Data Analysis, Elsevier, vol. 51(7), pages 3418-3432, April.
  3. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
  4. Diebold, F.X. & Kilian, L. & Nerlove, Marc, 2006. "Time Series Analysis," Working Papers 28556, University of Maryland, Department of Agricultural and Resource Economics.
  5. Tm Mokoena, 2007. "Taking The Puzzle Out Of The Purchasing Power Parity Puzzle: An Application In Respect Of South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 75(1), pages 22-34, 03.
  6. Jeffrey A. Frankel and Andrew K. Rose., 1995. "A Survey of Empirical Research on Nominal Exchange Rates," Center for International and Development Economics Research (CIDER) Working Papers C95-051, University of California at Berkeley.
  7. Thabo Mokoena & Rangan Gupta & Renee Van Eyden, 2008. "Testing for Fractional Integration in SADC Real Exchange Rates," Working Papers 200811, University of Pretoria, Department of Economics.
  8. Elliott, Graham & Stock, James H., 2001. "Confidence intervals for autoregressive coefficients near one," Journal of Econometrics, Elsevier, vol. 103(1-2), pages 155-181, July.
  9. Shang-Jin Wei & David C. Parsley, 1995. "Purchasing Power Disparity During the Floating Rate Period: Exchange Rate Volatility, Trade Barriers and Other Culprits," NBER Working Papers 5032, National Bureau of Economic Research, Inc.
  10. Stock, James H., 1991. "Confidence intervals for the largest autoregressive root in U.S. macroeconomic time series," Journal of Monetary Economics, Elsevier, vol. 28(3), pages 435-459, December.
  11. Fung, Hung-Gay & Lo, Wai-Chung, 1992. "Deviations from Purchasing Power Parity," The Financial Review, Eastern Finance Association, vol. 27(4), pages 553-70, November.
  12. Cheung, Yin-Wong & Lai, Kon S., 2000. "On the purchasing power parity puzzle," Journal of International Economics, Elsevier, vol. 52(2), pages 321-330, December.
  13. Rossi, Barbara, 2002. "Confidence Intervals for Half-life Deviations from Purchasing Power Parity," Working Papers 02-08, Duke University, Department of Economics.
  14. Lothian, James R & Taylor, Mark P, 1996. "Real Exchange Rate Behavior: The Recent Float from the Perspective of the Past Two Centuries," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 488-509, June.
  15. Manzur, Meher, 1990. "An international comparison of prices and exchange rates: a new test of purchasing power parity," Journal of International Money and Finance, Elsevier, vol. 9(1), pages 75-91, March.
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Cited by:
  1. Goodness C. Aye & Samrat Goswami & Rangan Gupta, 2012. "Metropolitan House Prices In India: Do They Converge?," Working Papers 201220, University of Pretoria, Department of Economics.

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