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Long-run validity of purchasing power parity and rank tests for cointegration for Central Asian Countries

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Author Info
Liew, Venus Khim-Sen
Chia, Ricky Chee-Jiun
Ling, Tai-Hu

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Abstract

This study finds that Purchasing Power Parity holds in the long-run for Azerbaijan, Kazakhstan and Kyrgyzstan, based on Breitung’s (2001) rank tests for cointegration. Results from further analysis indicates that nominal exchange rates and relative prices are nonlinearly interrelated. Trade barriers, transportation costs and government intervention in the pricing system in these countries may have resulted in the establishment of the above-mentioned nonlinear relationship.

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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15794.

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Date of creation: 2009
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Handle: RePEc:pra:mprapa:15794

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Related research
Keywords: Purchasing power parity; Cointegration; Nonlinear; Rank tests; Central Asia.;

Find related papers by JEL classification:
C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
F31 - International Economics - - International Finance - - - Foreign Exchange

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  1. Alan M. Taylor & Mark P. Taylor, 2004. "The Purchasing Power Parity Debate," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 135-158, Fall. [Downloadable!] (restricted)
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  2. Mark P. Taylor, 2006. "Real exchange rates and Purchasing Power Parity: mean-reversion in economic thought," Applied Financial Economics, Taylor and Francis Journals, vol. 16(1-2), pages 1-17, January. [Downloadable!] (restricted)
  3. Murat Doğanlar, 2006. "Long-run validity of Purchasing Power Parity and cointegration analysis for Central Asian countries," Applied Economics Letters, Taylor and Francis Journals, vol. 13(7), pages 457-461, June. [Downloadable!] (restricted)
  4. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July. [Downloadable!] (restricted)
    Other versions:
  5. 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. [Downloadable!] (restricted)
    Other versions:
  6. Breitung, Jorg, 2001. "Rank Tests for Nonlinear Cointegration," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(3), pages 331-40, July.
  7. Mark P. Taylor, 2003. "Purchasing Power Parity," Review of International Economics, Blackwell Publishing, vol. 11(3), pages 436-452, 08. [Downloadable!] (restricted)
  8. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November. [Downloadable!] (restricted)
  9. Ma, Yue & Kanas, Angelos, 2000. "Testing for nonlinear Granger causality from fundamentals to exchange rates in the ERM," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(1), pages 69-82, January. [Downloadable!] (restricted)
  10. 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 and Francis Journals, vol. 35(12), pages 1387-1392, August. [Downloadable!] (restricted)
  11. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254. [Downloadable!] (restricted)
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