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Testing the PPP in the non-linear STAR Framework: Evidence from Africa

Author

Listed:
  • Mohsen Bahmani-Oskooee

    () (University of Wisconsin-Milwaukee)

  • Abera Gelan

    () (University of Wisconsin-Milwaukee)

Abstract

Since its introduction in 2003, a new unit-root test that incorporates non-linearity in mean reverting process of a time series variable has gained momentum in testing the Purchasing Power Parity (PPP) theory. A few studies have applied the new test to the real bilateral exchange rates and have shown that it supports the PPP more often than the standard ADF test. In this paper we apply the new test as well as the standard ADF test not to real bilateral exchange rates but to real effective exchange rates of 21 African nations and show that indeed, the PPP is validated in 11 out of 21 African countries.

Suggested Citation

  • Mohsen Bahmani-Oskooee & Abera Gelan, 2006. "Testing the PPP in the non-linear STAR Framework: Evidence from Africa," Economics Bulletin, AccessEcon, vol. 6(17), pages 1-15.
  • Handle: RePEc:ebl:ecbull:eb-06f30023
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Sahar Bahmani, 2008. "Stability of the Demand for Money in the Middle East," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 44(1), pages 62-83, January.
    2. repec:bla:reviec:v:25:y:2017:i:5:p:949-974 is not listed on IDEAS
    3. Neil Balchin & Lawrence Edwards & Asha Sundaram, 2015. "A Disaggregated Analysis of Product Price Integration in the Southern African Development Community," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 24(3), pages 390-415.
    4. repec:eei:journl:v:60:y:2017:i:2:p:14-38 is not listed on IDEAS
    5. Blaise Gnimassoun, 2017. "Exchange rate misalignments and the external balance under a pegged currency system," Review of International Economics, Wiley Blackwell, vol. 25(5), pages 949-974, November.
    6. Sahar Bahmani, 2008. "Stability of the Demand for Money in the Middle East," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 44(1), pages 62-83, January.
    7. Blaise Gnimassoun, 2017. "Exchange rate misalignments and the external balance under a pegged currency system," Post-Print hal-01665005, HAL.
    8. Mohsen Bahmani-Oskooee & Omid Ranjbar, 2016. "Quantile unit root test and PPP: evidence from 23 OECD countries," Applied Economics, Taylor & Francis Journals, vol. 48(31), pages 2899-2911, July.
    9. Andrew Phiri, 2017. "Nonlinear adjustment effects in the purchasing power parity," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 60(2), pages 14-38.
    10. Alper ASLAN, 2010. "The validity of PPP: evidence from Lagrange multiplier unit root tests for ASEAN countries," Economics Bulletin, AccessEcon, vol. 30(2), pages 1433-1443.
    11. Phiri, Andrew, 2014. "Purchasing power parity (PPP) between South Africa and her main currency exchange partners: Evidence from asymmetric unit root tests and threshold co-integration analysis," MPRA Paper 53659, University Library of Munich, Germany.
    12. Juan Carlos Cuestas & Estefania Mourelle, 2011. "Nonlinearities in real exchange rate determination: do African exchange rates follow a random walk?," Applied Economics, Taylor & Francis Journals, vol. 43(2), pages 243-258.
    13. Liew, Venus Khim-Sen & Baharumshah, Ahmad Zubaidi & Habibullah, Muzafar Shah & Midi, Habshah, 2008. "Monetary exchange rate model: supportive evidence from nonlinear testing procedures," MPRA Paper 7293, University Library of Munich, Germany.

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    JEL classification:

    • F3 - International Economics - - International Finance
    • F3 - International Economics - - International Finance

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