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Testing for PPP Using SADC Real Exchange Rates

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Author Info
Thabo Mokoena () (South African Reserve Bank, Pretoria)
Rangan Gupta () (Department of Economics, University of Pretoria)
Renee van Eyden () (Department of Economics, University of Pretoria)

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Abstract

This paper attempts to provide evidence indicating that the Purchasing Power Parity (PPP) puzzle is becoming less of a puzzle. It present the results of Augmented Dickey-Fuller (ADF) test, nonlinear tests of nonstationarity, and Bayesian unit root tests, applied to ten SADC countries. The Bayesian tests were found to be biased in favour of a trend stationary model in all cases. It is argued that nonlinear approaches to exchange rate adjustments are likely to provide a firmer basis for inference and stronger support for the PPP in the long-term. This is more so at 1 per cent and 5 per cent levels of significance.

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Publisher Info
Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 200822.

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Length: 14 pages
Date of creation: Jun 2008
Date of revision:
Handle: RePEc:pre:wpaper:200822

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Related research
Keywords: Purchasing Power Parity; Nonlinear Nonstationarity Tests; Bayesian Unit Root Test;

Other versions of this item:

Find related papers by JEL classification:
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
F31 - International Economics - - International Finance - - - Foreign Exchange

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  1. Thabo M. Mokoena & Gupta, R. & Van Eyden, R., 2009. "Half-Life Deviations from PPP in the South African Development Community (SADC)," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 9(1). [Downloadable!] (restricted)
Statistics
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This page was last updated on 2009-12-3.

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