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Purchasing Power Parity for South Africa: Recent Empirical Evidence

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  • M Thomas Paul
  • G R Motlaleng

Abstract

The paper tests the Purchasing Power Parity (PPP) theory in both its absolute and relative version for the Republic of South Africa (RSA), for the sample period from the second quarter of 1993 to the second quarter of 2003. The cointegration and error correction methodologies are employed in this paper as the data are found to be non-stationary. It clearly establishes that the changes in RSA rand/USA dollar are influenced by the long-term trends in the price differential between the RSA and the USA. It is also interesting to note that the effect of short-term interest rate differential is in the direction of appreciation of the South African rand. The proportionality and symmetry hypothesis of the strong version of the PPP is also supported.

Suggested Citation

  • M Thomas Paul & G R Motlaleng, 2007. "Purchasing Power Parity for South Africa: Recent Empirical Evidence," The IUP Journal of Applied Economics, IUP Publications, vol. 0(6), pages 21-42, November.
    • Handle: RePEc:icf:icfjae:v:06:y:2007:i:6:p:21-42
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