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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, Jorg, 2001. "Rank Tests for Nonlinear Cointegration," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 19(3), pages 331-40, July.
  2. 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, Elsevier, vol. 10(1), pages 69-82, January.
  3. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 12(2-3), pages 231-254.
  4. Liew, Venus Khim-sen & Baharumshah, Ahmad Zubaidi & Chong, Terence Tai-leung, 2004. "Are Asian real exchange rates stationary?," Economics Letters, Elsevier, Elsevier, vol. 83(3), pages 313-316, June.
  5. Venus Khim-Sen Liew, 2004. "Nonlinear Adjustment of ASEAN-5 Real Exchange Rates: Symmetrical or Asymmetrical?," Economics Bulletin, AccessEcon, vol. 6(8), pages 1-19.
  6. Alan M. Taylor & Mark P. Taylor, 2004. "The Purchasing Power Parity Debate," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 18(4), pages 135-158, Fall.
  7. repec:ebl:ecbull:v:6:y:2004:i:8:p:1-19 is not listed on IDEAS
  8. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, Econometric Society, vol. 61(4), pages 783-820, July.
  9. Mark Taylor, 2006. "Real exchange rates and Purchasing Power Parity: mean-reversion in economic thought," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 16(1-2), pages 1-17.
  10. Phillips, Peter C B & Hansen, Bruce E, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(1), pages 99-125, January.
  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 & Francis Journals, Taylor & Francis Journals, vol. 35(12), pages 1387-1392.
  13. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, Econometric Society, vol. 59(6), pages 1551-80, November.
  14. Murat Doğanlar, 2006. "Long-run validity of Purchasing Power Parity and cointegration analysis for Central Asian countries," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 13(7), pages 457-461.
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Cited by:
  1. Ricky Chee Jiun Chia & Shiok Ye Lim & Sheue Li Ong, 2014. "Long-Run Validity of Purchasing Power Parity and Cointegration Analysis for Low Income African Countries," Economics Bulletin, AccessEcon, vol. 34(3), pages 1438-1447.
  2. Venus khim-sen Liew, 2009. "Linear and nonlinear monetary approaches to the exchange rate of the Philippines peso-Japanese yen," Economics Bulletin, AccessEcon, vol. 29(2), pages 1320-1329.
  3. Aviral Tiwari & Muhammad Shahbaz, 2014. "Revisiting Purchasing Power Parity for India using threshold cointegration and nonlinear unit root test," Economic Change and Restructuring, Springer, Springer, vol. 47(2), pages 117-133, May.
  4. Liew, Venus Khim-Sen & Ling, Tai-Hu & Chia, Ricky Chee-Jiun & Yoon, Gawon, 2012. "On the application of the rank tests for nonlinear cointegration to PPP: The case of Papua New Guinea," Economic Modelling, Elsevier, Elsevier, vol. 29(2), pages 326-332.

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