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The Validity of Purchasing Power Parity Hypothesis in Middle East and Northern Africa Countries

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Author Info

  • Kalyoncu, Hüseyin

    ()
    (Meliksah University, Faculty of Economics and Administrative Sciences, Department of International Trade and Business, Kayseri, Turkey)

  • Kula, Ferit

    ()
    (Erciyes University, Faculty of Economics and Administrative Sciences, Department of Economics, Kayseri, Turkey)

  • Aslan, Alper

    ()
    (Meliksah University, Faculty of Economics and Administrative Sciences, Department of International Trade and Business, Kayseri, Turkey)

Abstract

This paper re-examines the Purchasing Power Parity (PPP) hypothesis in which the endogenously determined break points are incorporated in thirteen major Middle East and Northern Africa (MENA) countries by using official and black market exchange rates data over 1970-1998. We utilize Lagrange Multiplier (LM) unit root test that endogenously determines structural breaks in level and trend. We find evidence of PPP for all countries using official and/or black market real exchange rates at the 10% level or better.

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File URL: http://www.ipe.ro/rjef/rjef4_10/rjef4_10_9.pdf
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Bibliographic Info

Article provided by Institute for Economic Forecasting in its journal Romanian Journal for Economic Forecasting.

Volume (Year): (2010)
Issue (Month): 4 (December)
Pages: 125-131

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Handle: RePEc:rjr:romjef:v::y:2010:i:4:p:125-131

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Related research

Keywords: Purchasing Power Parity (PPP); Real exchange rate; Black market; Exchange rates; Unit-root test; Structural break;

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References

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  1. Bahmani-Oskooee, Mohsen, 1998. "Do exchange rates follow a random walk process in Middle Eastern countries?," Economics Letters, Elsevier, vol. 58(3), pages 339-344, March.
  2. Junsoo Lee & Mark C. Strazicich, 2004. "Minimum LM Unit Root Test with One Structural Break," Working Papers 04-17, Department of Economics, Appalachian State University.
  3. Huseyin Kalyoncu, 2009. "New evidence of the validity of purchasing power parity from Turkey," Applied Economics Letters, Taylor & Francis Journals, vol. 16(1), pages 63-67.
  4. Narayan Paresh K & Prasad Biman Chand, 2005. "The Validity of Purchasing Power Parity Hypothesis for Eleven Middle Eastern Countries," Review of Middle East Economics and Finance, De Gruyter, vol. 3(2), pages 44-58, August.
  5. Kul B. Luintel, 2000. "Real exchange rate behaviour: evidence from black markets," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(2), pages 161-185.
  6. Sarno, Lucio & Taylor, Mark P, 2001. "Purchasing Power Parity and the Real Exchange Rate," CEPR Discussion Papers 2913, C.E.P.R. Discussion Papers.
  7. Syed A. Basher & Mohammed Mohsin, 2003. ""PPP tests in cointegrated panels: Evidence from Asian developing countries"," Macroeconomics 0310012, EconWPA.
  8. Froot, Kenneth A. & Rogoff, Kenneth, 1995. "Perspectives on PPP and long-run real exchange rates," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 32, pages 1647-1688 Elsevier.
  9. Strazicich, Mark C. & Lee, Junsoo & Day, Edward, 2004. "Are incomes converging among OECD countries? Time series evidence with two structural breaks," Journal of Macroeconomics, Elsevier, vol. 26(1), pages 131-145, March.
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