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Purchasing power parity in emerging markets: A panel stationary test with both sharp and smooth breaks

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  • Bahmani-Oskooee, Mohsen
  • Chang, Tsangyao
  • Lee, Kuei-Chiu

Abstract

Univariate unit root tests are said to have low power in rejecting the null of unit root or supporting the stationarity of real exchange rates, hence the purchasing power parity theory (PPP). In this paper we apply a panel stationary test with both sharp and smooth breaks to test PPP in 11 emerging countries, using their real effective exchange rates over January 1994 to March 2013. This test has been proved to be more powerful in capturing both long swings and sharp breaks of the real effective exchange rates. Our empirical results from several panel tests provide strong support for PPP in these emerging countries.

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  • Bahmani-Oskooee, Mohsen & Chang, Tsangyao & Lee, Kuei-Chiu, 2016. "Purchasing power parity in emerging markets: A panel stationary test with both sharp and smooth breaks," Economic Systems, Elsevier, vol. 40(3), pages 453-460.
    • Handle: RePEc:eee:ecosys:v:40:y:2016:i:3:p:453-460
    DOI: 10.1016/j.ecosys.2015.12.002
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    2. Michael Frömmel & Darko B. Vukovic & Jinyuan Wu, 2022. "The Dollar Exchange Rate, Adjustment to the Purchasing Power Parity, and the Interest Rate Differential," Mathematics, MDPI, vol. 10(23), pages 1-17, November.
    3. Mhd Ruslan, Siti Marsila & Mokhtar, Kasypi, 2020. "An Analysis of Price Disparity: Peninsular Malaysia and Sabah," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 54(2), pages 53-66.
    4. Cuihong Ye & Yiguo Chen & Roula Inglesi-Lotz & Tsangyao Chang, 2020. "CO2 emissions converge in China and G7 countries? Further evidence from Fourier quantile unit root test," Energy & Environment, , vol. 31(2), pages 348-363, March.
    5. Kassouri, Yacouba & Altıntaş, Halil, 2020. "Commodity terms of trade shocks and real effective exchange rate dynamics in Africa's commodity-exporting countries," Resources Policy, Elsevier, vol. 68(C).
    6. Xie, Zixiong & Chen, Shyh-Wei & Hsieh, Chun-Kuei, 2021. "Facing up to the polysemy of purchasing power parity: New international evidence," Economic Modelling, Elsevier, vol. 98(C), pages 247-265.
    7. Sakiru Adebola Solarin & Sinan Erdogan & Ugur Korkut Pata, 2023. "Convergence of Income Inequality in OECD Countries Since 1870: A Multi-Method Approach with Structural Changes," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 166(3), pages 601-626, April.

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    More about this item

    Keywords

    Purchasing power parity; Emerging markets; Panel stationary test; Sharp and smooth breaks;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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