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