Re-examining Purchasing Power Parity for East-Asian Currencies: 1976-2002
AbstractWe investigate the behavior of real exchange rates of six East-Asia countries in relation to their two major trading partners – the US and Japan. These countries, Singapore excepted, were affected by the financial crisis of the fall 1997. Using monthly frequency data from 1976 to 2002 and the ARDL cointegration procedure we test for the long-run PPP hypothesis. We find no evidence for the weak form of PPP in the pre-crisis period but strong evidence in the post-crisis period. For the post-crisis period, we also find very small persistence of PPP deviations as indicated by very small half-lives (less than 7 months) and narrow confidence intervals with an upper bound of 1 year or less in most countries. Our findings reveal that the East Asian countries are returning to some form of PPP-oriented rule as a basis for their exchange rate policies.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 2025.
Date of creation: 2004
Date of revision: 2006
Purchasing power parity; Asian financial crisis; bounds test; half-lives; confidence intervals;
Other versions of this item:
- Ahmad Zubaidi Baharumshah & Chan Tze-Haw & Stilianos Fountas, 2007. "Re-examining purchasing power parity for East-Asian currencies: 1976-2002," Applied Financial Economics, Taylor & Francis Journals, vol. 18(1), pages 75-85.
- F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
- F31 - International Economics - - International Finance - - - Foreign Exchange
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-10 (All new papers)
- NEP-IFN-2007-03-10 (International Finance)
- NEP-SEA-2007-03-10 (South East Asia)
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