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Testing The Modified-Combined Ppp And Uip Hypothesis In South Asian Economies

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Author Info
Abdul RASHID ()

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Abstract

In this paper, the interrelations between PPP and UIP are modified and tested for South Asian economies using multivariate cointegration approach. The study uses monthly data and sample period varies cross-country according to floating exchange rate regime. The results obtained are highly supportive of this version of the combined PPP and UIP, which takes into account the non-traded and imperfect capital mobility phenomena. Consistent with the capital enhanced equilibrium exchange rates (CHEERs) approach, the determination of the nominal exchange rate is consistent with the UIP-PPP conditional equilibrium. The interaction between PPP and UIP has consequential implications for financial reforms, an exchange rate based stabilization program and exchange rate policy alike.

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Publisher 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_18

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Related research
Keywords: Purchasing Power Parity; Uncovered Interest Rate Parity; Equilibrium Exchange Rate; South Asian Economies; Fear of Floating; Multivariate Cointegration Analysis;

Find related papers by JEL classification:
C39 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Other
F29 - International Economics - - International Factor Movements and International Business - - - Other
F31 - International Economics - - International Finance - - - Foreign Exchange

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," CEPR Discussion Papers 1131, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Caporale, Guglielmo Maria & Kalyvitis, Sarantis & Pittis, Nikitas, 2001. "Testing for PPP and UIP in an FIML framework: Some evidence for Germany and Japan," Journal of Policy Modeling, Elsevier, vol. 23(6), pages 637-650, August. [Downloadable!] (restricted)
  3. Engel, Charles & Rogers, John H, 1996. "How Wide Is the Border?," American Economic Review, American Economic Association, vol. 86(5), pages 1112-25, December. [Downloadable!] (restricted)
    Other versions:
  4. Chinn, Menzie & Meredith, Guy, 2000. "Testing Uncovered Interest Parity at Short and Long Horizons," Discussion Paper Series 26355, Hamburg Institute of International Economics. [Downloadable!]
  5. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June. [Downloadable!] (restricted)
  6. Nelson C. Mark & Yangru Wu, 1996. "Risk, Policy Rules, and Noise: Rethinking Deviations From Uncovered Interest Parity," Working Papers 014, Ohio State University, Department of Economics. [Downloadable!]
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  7. Fritsche, Charmaine Pereira & Wallace, Myles, 1997. "Forecasting the exchange rate PPP versus a random walk," Economics Letters, Elsevier, vol. 54(1), pages 69-74, January. [Downloadable!] (restricted)
  8. Anne-Marie Brook & David Hargreaves, 2001. "PPP-based analysis of New Zealand's equilibrium exchange rate," Reserve Bank of New Zealand Discussion Paper Series DP2001/01, Reserve Bank of New Zealand. [Downloadable!]
  9. Edison, Hali J. & Pauls, B. Dianne, 1993. "A re-assessment of the relationship between real exchange rates and real interest rates: 1974-1990," Journal of Monetary Economics, Elsevier, vol. 31(2), pages 165-187, April. [Downloadable!] (restricted)
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  10. Gonzalo, Jesus, 1994. "Five alternative methods of estimating long-run equilibrium relationships," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 203-233. [Downloadable!] (restricted)
  11. repec:pal:imfstp:v:47:y:2000:i:1:p:5 is not listed on IDEAS
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  12. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254. [Downloadable!] (restricted)
  13. repec:pal:imfstp:v:49:y:2002:i:2:p:6 is not listed on IDEAS
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Sonali Das & Rangan Gupta & Patrick Agu Kaya, 2009. "Convergence of Metropolitan House Prices in South Africa: A Re-Examination Using Efficient Unit Root Tests," Working Papers 200922, University of Pretoria, Department of Economics. [Downloadable!]
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This page was last updated on 2009-11-22.

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