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Purchasing Power Parity under Regime Shifts: An Application to Asian Countries


  • Salah A. Nusair


This paper re-examines the long-run purchasing power parity (PPP) relationship for nine Asian countries relative to the USA and Japan during a period containing significant structural breaks. The relevance of considering structural breaks in PPP tests is demonstrated by utilizing the Johansen et al. (2000) procedure that allows for up to two pre-determined structural breaks. Using conventional tests without considering breaks, one is able to reject the null of no cointegration for only four countries. The Johansen et al. procedure clearly demonstrates the importance of allowing for structural breaks and provides strong support for long-run PPP for all the countries, regardless of the base country, except in the case of the Philippines vis-à-vis Japan. The Hansen-Johansen parameter constancy test indicates stability for all the countries except the Philippines relative to the USA and Malaysia relative to Japan. Copyright 2008 The Author. Journal compilation 2008 East Asian Economic Association and Blackwell Publishing Ltd.

Suggested Citation

  • Salah A. Nusair, 2008. "Purchasing Power Parity under Regime Shifts: An Application to Asian Countries ," Asian Economic Journal, East Asian Economic Association, vol. 22(3), pages 241-266, September.
  • Handle: RePEc:bla:asiaec:v:22:y:2008:i:3:p:241-266

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    Cited by:

    1. Taguchi, Hiroyuki, 2010. "The pre- and post-crisis real exchange rate behavior in selected East Asian countries," MPRA Paper 63789, University Library of Munich, Germany.
    2. Kisswani, Khalid M. & Nusair, Salah A., 2013. "Non-linearities in the dynamics of oil prices," Energy Economics, Elsevier, vol. 36(C), pages 341-353.
    3. Salah Nusair, 2012. "Nonlinear adjustment of Asian real exchange rates," Economic Change and Restructuring, Springer, vol. 45(3), pages 221-246, August.
    4. Khalid Kisswani & Salah Nusair, 2014. "Nonlinear convergence in Asian interest and inflation rates: evidence from Asian countries," Economic Change and Restructuring, Springer, vol. 47(3), pages 155-186, August.
    5. Kisswani, Khalid/ M. & Nusair, Salah/ A., 2011. "Non-linear convergence in Asian interest rates and inflation rates," MPRA Paper 34179, University Library of Munich, Germany.

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