Does the Purchasing Power Parity Hold in Emerging Markets? Evidence from Black Market Exchange Rates
AbstractWe examine the Purchasing Power Parity (PPP) hypothesis using a unique panel of monthly data on black market exchange rates for twenty emerging market economies over the period 19973M1-1993M12. We apply a large number of recent heterogeneous panel unit root and cointegration tests. Panel unit root tests do not favour mean reversion in the real black market exchange rate. The evidence for non-rejection of the unit root hypothesis remains robust even after allowing for structural breaks. Panel cointegration tests support evidence of cointegration between the nominal exchange rate and relative prices. These results contrast with those obtained from unit root tests. Since we believe that the former may be biased by the imposition of the joint symmetry and proportionality restriction, we test for such a restriction using likelihood ratio tests and find that it is strongly rejected.
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Bibliographic InfoPaper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2003 with number 40.
Date of creation: 04 Jun 2003
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black market exchange rates; purchasing power parity; panel unit root and cointegration tests;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
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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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