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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)

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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Bibliographic 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;

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Cited by:
  1. Riané de Bruyn & Rangan Gupta & Lardo Stander, 2013. "Testing the Monetary Model for Exchange Rate Determination in South Africa: Evidence from 101 Years of Data," Contemporary Economics, University of Finance and Management in Warsaw, vol. 7(1), March.
  2. 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).

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