Re-examining purchasing power parity for East-Asian currencies: 1976-2002
AbstractWe investigate the behaviour of real exchange rates of six East-Asian countries in relation to their two major trading partners-the United States and Japan. These countries, except, Singapore were affected by the financial crisis of the fall 1997. Using monthly frequency data from 1976 to 2002 and the autoregressive distributed lag (ARDL) cointegration procedure we test for the long-run purchasing power parity (PPP) hypothesis. We find no evidence for the weak form of PPP in the pre-crisis period, but strong evidence in the post-crisis period. For the post-crisis period, we also find very small persistence of PPP deviations as indicated by very small half-lives (<7 months) and narrow confidence intervals with an upper bound of 1 year or less in most countries. Our findings reveal that the East Asian countries are returning to some form of PPP-oriented rule as a basis for their exchange rate policies.
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Applied Financial Economics.
Volume (Year): 18 (2007)
Issue (Month): 1 ()
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Other versions of this item:
- Barumshah, Ahmad Zubaidi & Chan, Tze-Haw & Fountas, Stilianos, 2004. "Re-examining Purchasing Power Parity for East-Asian Currencies: 1976-2002," MPRA Paper 2025, University Library of Munich, Germany, revised 2006.
- F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
- F31 - International Economics - - International Finance - - - Foreign Exchange
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
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