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Does PPP hold in African countries? Further evidence based on a highly dynamic non-linear (logistic) unit root test

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  • Tsangyao Chang
  • Hsu-Ling Chang
  • Hsiao-Ping Chu
  • Chi-Wei Su

Abstract

With a view to investigating whether the purchasing power parity (PPP) theory holds true for selected African countries during the January 1980-December 2003 period, we employ a rigorous, highly dynamic non-linear (logistic) unit root test, as first advanced by Leybourne et al. (1998), which is considerably more powerful than those tests traditionally used. Compared with the rejection of the null of the unit root process for only one of the 22 countries under study when we use the traditional ADF, PP, KPSS, NP and the DF-GLS unit root tests, with the Leybourne et al. (1998) test, we strongly reject the null of the unit root process for a surprising six of the 22 countries. These empirical results clearly indicate that PPP holds true for these six countries, namely the Central African Republic, the Cote d'Ivoire, Kenya, Madagascar, Uganda and Lesotho.

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Bibliographic Info

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

Volume (Year): 38 (2006)
Issue (Month): 20 ()
Pages: 2453-2459

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Handle: RePEc:taf:applec:v:38:y:2006:i:20:p:2453-2459

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  1. Walter Enders & Kamol Chumrusphonlert, 2004. "Threshold cointegration and purchasing power parity in the pacific nations," Applied Economics, Taylor & Francis Journals, vol. 36(9), pages 889-896.
  2. Peel, David & Sarno, Lucio & Taylor, Mark P, 2001. "Nonlinear Mean-Reversion in Real Exchange Rates: Towards a Solution to the Purchasing Power Parity Puzzles," CEPR Discussion Papers 2658, C.E.P.R. Discussion Papers.
  3. Baum, Christopher F. & Barkoulas, John T. & Caglayan, Mustafa, 2001. "Nonlinear adjustment to purchasing power parity in the post-Bretton Woods era," Journal of International Money and Finance, Elsevier, vol. 20(3), pages 379-399, June.
  4. Sarno, Lucio, 2000. "Real exchange rate behavior in the Middle East: a re-examination," Economics Letters, Elsevier, vol. 66(2), pages 127-136, February.
  5. Kilian, Lutz & Taylor, Mark P., 2003. "Why is it so difficult to beat the random walk forecast of exchange rates?," Journal of International Economics, Elsevier, vol. 60(1), pages 85-107, May.
  6. Ashok Parikh & Geoffrey Williams, 1998. "Modelling real exchange rate behaviour: a cross-country study," Applied Financial Economics, Taylor & Francis Journals, vol. 8(6), pages 577-587.
  7. Liew, Venus Khim-sen & Baharumshah, Ahmad Zubaidi & Chong, Terence Tai-leung, 2004. "Are Asian real exchange rates stationary?," Economics Letters, Elsevier, vol. 83(3), pages 313-316, June.
  8. Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
  9. Apostolos Serletis & Periklis Gogas, 2000. "Purchasing power parity, nonlinearity and chaos," Applied Financial Economics, Taylor & Francis Journals, vol. 10(6), pages 615-622.
  10. Jun Nagayasu, 1998. "Does the Long-Run Ppp Hypothesis Hold for Africa? Evidence From Panel Co-Integration Study," IMF Working Papers 98/123, International Monetary Fund.
  11. Venus Khim-Sen Liew & Terence Tai-Leung Chong & Kian-Ping Lim, 2003. "The inadequacy of linear autoregressive model for real exchange rates: empirical evidence from Asian economies," Applied Economics, Taylor & Francis Journals, vol. 35(12), pages 1387-1392.
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Cited by:
  1. Neil Balchin, Lawrence Edwards and Asha Sundaram, 2014. "A Disaggregated Analysis of Product Price Integration in the Southern African Development Community," Working Papers 421, Economic Research Southern Africa.
  2. David Silvera, . "The Antecedents and Consequences of Defensive Attributions inProduct-Harm Crises," Working Papers 0012, College of Business, University of Texas at San Antonio.
  3. Zhou, Su, 2008. "Stationarity of Asian-Pacific real exchange rates," Economics Letters, Elsevier, vol. 98(1), pages 16-22, January.
  4. 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.
  5. Lawrence Edwards & Neil Rankin, 2012. "Is Africa Integrating? Evidence from Product Markets," Working Papers 292, Economic Research Southern Africa.

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