Does Purchasing Power Parity Hold in African Less Developed Countries? Evidence from a Panel Data Unit Root Test
AbstractThis study tests for long-run relative purchasing power parity among a sample of 27 African less developed countries. For this purpose, a new test advocated by Im and co-workers is employed which allows one to test for unit roots in heterogeneous panel datasets. This is known as the t-bar test, by which purchasing power parity is confirmed or rejected on the basis of whether or not the average augmented Dickey-Fuller statistic based on demeaned data is significantly different from zero. Using quarterly data covering the period 1974-97, purchasing power parity is generally rejected using individual country unit root tests but support is found using the t-bar test. This suggests that low power problems in testing for purchasing power parity can be overcome using this panel data procedure. The findings also support the view that purchasing power parity is most likely to be found among high inflation less developed countries and that the half-life of a one-off random shock to parity is approximately six quarters. These results are generally confirmed for the 1960-73 period. Copyright 2000 by Oxford University Press.
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Bibliographic InfoArticle provided by Centre for the Study of African Economies (CSAE) in its journal Journal of African Economies.
Volume (Year): 9 (2000)
Issue (Month): 1 (March)
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- Jean-Francois Hoarau, 2010. "Does long-run purchasing power parity hold in Eastern and Southern African countries? Evidence from panel data stationary tests with multiple structural breaks," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 15(4), pages 307-315.
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- Paul Alagidede & George Tweneboah & Anokye M. Adam, 2008. "Nominal Exchange Rates and Price Convergence in the West African Monetary Zone," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 7(3), pages 181-198, December.
- Lawrence Edwards & Neil Rankin, 2012. "Is Africa Integrating? Evidence from Product Markets," Working Papers 292, Economic Research Southern Africa.
- Lee, Chien-Chiang & Chang, Chun-Ping, 2008. "Unemployment hysteresis in OECD countries: Centurial time series evidence with structural breaks," Economic Modelling, Elsevier, vol. 25(2), pages 312-325, March.
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