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Testing the PPP in the non-linear STAR Framework: Evidence from Africa

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Author Info
Mohsen Bahmani-Oskooee () (University of Wisconsin-Milwaukee)
Abera Gelan () (University of Wisconsin-Milwaukee)

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Abstract

Since its introduction in 2003, a new unit-root test that incorporates non-linearity in mean reverting process of a time series variable has gained momentum in testing the Purchasing Power Parity (PPP) theory. A few studies have applied the new test to the real bilateral exchange rates and have shown that it supports the PPP more often than the standard ADF test. In this paper we apply the new test as well as the standard ADF test not to real bilateral exchange rates but to real effective exchange rates of 21 African nations and show that indeed, the PPP is validated in 11 out of 21 African countries.

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File URL: http://economicsbulletin.vanderbilt.edu/2006/volume6/EB-06F30023A.pdf
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Publisher Info
Article provided by Economics Bulletin in its journal Economics Bulletin.

Volume (Year): 6 (2006)
Issue (Month): 17 ()
Pages: 1-15
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Handle: RePEc:ebl:ecbull:v:6:y:2006:i:17:p:1-15

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Related research
Keywords: Africa Non-linear Unit Root PPP

Find related papers by JEL classification:
F3 - International Economics - - International Finance
F3 - International Economics - - International Finance

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. Lucio Sarno, 2005. "Viewpoint: Towards a solution to the puzzles in exchange rate economics: where do we stand?," Canadian Journal of Economics, Canadian Economics Association, vol. 38(3), pages 673-708, August. [Downloadable!] (restricted)
  2. Georgios Chortareas & George Kapetanios, 2004. "The Yen Real Exchange Rate may be Stationary after all: Evidence from Non-linear Unit-root Tests," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(1), pages 113-131, 02. [Downloadable!] (restricted)
    Other versions:
  3. Michael, Panos & Nobay, A Robert & Peel, David A, 1997. "Transactions Costs and Nonlinear Adjustment in Real Exchange Rates: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 862-79, August.
  4. Corbae, Dean & Ouliaris, Sam, 1991. "A Test of Long-Run Purchasing Power Parity Allowing for Structural Breaks," The Economic Record, The Economic Society of Australia, vol. 67(196), pages 26-33, March.
  5. Liew, Venus Khim-sen & Baharumshah, Ahmad Zubaidi & Chong, Terence Tai-leung, 2004. "Are Asian real exchange rates stationary?," Economics Letters, Elsevier, vol. 83(3), pages 313-316, June. [Downloadable!] (restricted)
    Other versions:
  6. Parsley, David C & Popper, Helen A, 2001. "Official Exchange Rate Arrangements and Real Exchange Rate Behavior," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(4), pages 976-93, November.
  7. Sarno, Lucio & Taylor, Mark P. & Chowdhury, Ibrahim, 2004. "Nonlinear dynamics in deviations from the law of one price: a broad-based empirical study," Journal of International Money and Finance, Elsevier, vol. 23(1), pages 1-25, February. [Downloadable!] (restricted)
    Other versions:
  8. Christopher F. Baum & Mustafa Caglayan & John Barkoulas, 1998. "Nonlinear Adjustment to Purchasing Power Parity in the post-Bretton Woods Era," Boston College Working Papers in Economics 404., Boston College Department of Economics, revised 16 Nov 1999. [Downloadable!]
    Other versions:
  9. Kapetanios, George & Shin, Yongcheol & Snell, Andy, 2003. "Testing for a unit root in the nonlinear STAR framework," Journal of Econometrics, Elsevier, vol. 112(2), pages 359-379, February. [Downloadable!] (restricted)
  10. Taylor, Mark P & Peel, David A & Sarno, Lucio, 2001. "Nonlinear Mean-Reversion in Real Exchange Rates: Toward a Solution to the Purchasing Power Parity Puzzles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1015-42, November.
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  11. Bahmani-Oskooee, Mohsen & Kutan, Ali M. & Zhou, Su, 2007. "Testing PPP in the non-linear STAR framework," Economics Letters, Elsevier, vol. 94(1), pages 104-110, January. [Downloadable!] (restricted)
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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. Liew , Venus Khim-Sen & Baharumshah, Ahmad Zubaidi & Habibullah, Muzafar Shah & Midi, Habshah, 2008. "Monetary exchange rate model: supportive evidence from nonlinear testing procedures," MPRA Paper 7293, University Library of Munich, Germany. [Downloadable!]
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