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The long and short run forcing variables of purchasing power parity of ASEAN-5

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  • Abdalrahman AbuDalu

    (College of Business, Universiti Utara Malaysia, Kedah, Malaysia)

  • Elsadig Musa Ahmed

    (Faculty of Business, Multimedia University, Malaysia)

Abstract

This study examines the long-run and short-run forcing variables of purchasing power parity (PPP) for ASEAN-5 currencies vis-a-vis the U.S. dollar, i.e., their real effective exchange rate (REER). This study uses the autoregressive distributed lag (ARDL) approach to co-integration over the period 1991:Q1 – 2006:Q2. Our empirical results suggest that the domestic money supply (M1) is a significant long run forcing variable for the REERs of Malaysia, Indonesia, the Philippines, and Singapore. However, the results suggest that the foreign interest rate (R*) is a long run forcing variable for Thailand’s REER. The findings can derive policy implication for the monetary authorities in these ASEAN-5 countries.

Suggested Citation

  • Abdalrahman AbuDalu & Elsadig Musa Ahmed, 2013. "The long and short run forcing variables of purchasing power parity of ASEAN-5," E3 Journal of Business Management and Economics., E3 Journals, vol. 4(3), pages 066-081.
    • Handle: RePEc:etr:series:v:4:y:2013:i:3:p:066-081
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