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Purchasing Power Parity in African Countries: Further Evidence based on the ADL Test for Threshold Cointegration

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  • Tsangyao Chang

    ()
    (Department of Finance, Feng Chia University, Taichung, Taiwan)

  • Chia-hao Lee

    ()
    (Department of Finance, National Chung Hsing University)

  • Guochen Pan

    ()
    (Department of Insurance and Actuarial Science, Wuhan University, China)

Abstract

In this study, we applied a newly-developed Autoregressive Distributed Lag (ADL) test for threshold cointegration, proposed by Li and Lee (2010) to test the validity of long-run purchasing power parity (PPP) for a sample of 18 African countries from January 1985 to September 2008. Empirical results indicate that PPP holds true for half of these countries studied, the long-run PPP adjustment process toward its equilibrium is asymmetric. Our results have important policy implications for these African countries under study.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 32 (2012)
Issue (Month): 1 ()
Pages: 220-228

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Handle: RePEc:ebl:ecbull:eb-11-00406

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Keywords: Purchasing Power Parity; African Countries; ADL Test; Threshold Cointegration; Asymmetric Adjustment;

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  1. Enders, Walter & Granger, C. W. J., 1998. "Unit Root Tests and Asymmetric Adjustment with an Example Using the Term Structure of Interest Rates," Staff General Research Papers 1388, Iowa State University, Department of Economics.
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