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

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

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

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  1. Breitung, Jörg, 1998. "Rank tests for nonlinear cointegration," SFB 373 Discussion Papers 1998,65, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  2. repec:ebl:ecbull:v:6:y:2004:i:8:p:1-19 is not listed on IDEAS
  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.
  4. 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.
  5. Taylor, Alan & Taylor, Mark, 2004. "The Purchasing Power Parity Debate," Working Papers 04-6, University of California at Davis, Department of Economics.
  6. 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.
  7. Mark 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.
  8. James H. Stock & Mark W. Watson, 1991. "A simple estimator of cointegrating vectors in higher order integrated systems," Working Paper Series, Macroeconomic Issues 91-3, Federal Reserve Bank of Chicago.
  9. 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.
  10. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  11. Mark P. Taylor, 2003. "Purchasing Power Parity," Review of International Economics, Wiley Blackwell, vol. 11(3), pages 436-452, 08.
  12. 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.
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