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Purchasing Power Parity and real exchange rate behaviour in Africa

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  • Joseph Kargbo
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    Abstract

    African policy makers have being implementing exchange rate policy reforms based on the assumption that long-run PPP holds in Africa. This study conducted a detailed empirical investigation to ascertain whether or not there is empirical support for long-run PPP in African countries. Because of the significant black market premium, we applied Johansen's cointegration method to annual data on official and black market exchange rates, and the GDP deflators of 40 countries covering the 1958-2003 period. The research shows overwhelming support for long-run PPP in Africa, thus, PPP is a reliable guide for exchange rate determination and exchange rate policy reform in African countries.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/09603100500389291
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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

    Volume (Year): 16 (2006)
    Issue (Month): 1-2 ()
    Pages: 169-183

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    Handle: RePEc:taf:apfiec:v:16:y:2006:i:1-2:p:169-183

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    Web page: http://www.tandfonline.com/RAFE20

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    Cited by:
    1. Cushman, David O., 2008. "Long-run PPP in a system context: No favorable evidence after all for the U.S., Germany, and Japan," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(5), pages 413-424, December.
    2. Olalekan Bashir Aworinde, 2014. "Are Bilateral Real Exchange Rates Stationary? Empirical Evidence from Nigeria," Economics Bulletin, AccessEcon, vol. 34(1), pages 271-286.
    3. 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.
    4. 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.
    5. Arize, Augustine C., 2011. "Purchasing power parity in LDCs: An empirical investigation," Global Finance Journal, Elsevier, vol. 22(1), pages 56-71.
    6. Phiri, Andrew, 2014. "Purchasing power parity (PPP) between South Africa and her main currency exchange partners: Evidence from asymmetric unit root tests and threshold co-integration analysis," MPRA Paper 53659, University Library of Munich, Germany.
    7. Riane de Bruyn & Rangan Gupta & Lardo stander, 2011. "Testing the Monetary Model for Exchange Rate Determination in South Africa: Evidence from 101 Years of Data," Working Papers 201134, University of Pretoria, Department of Economics.

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