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Does long-run purchasing power parity hold in Eastern and Southern African countries? Evidence from panel data stationary tests with multiple structural breaks

  • Jean-Francois Hoarau

    (CERESUR, University of La Reunion, France)

This study tests for the long-run purchasing power parity hypothesis for a panel of 17 African economies, all belonging to the Common Market for Eastern and Southern Africa, over the period 1970-2007. This assumption is considered both in its traditional view, that is, the reversion of the real exchange rate (RER) to a constant mean, and in the Balassa-Samuelson view, that is, the reversion of the RER to a constant trend. For this purpose, we use the new panel data stationary test advocated by Carrion-i-Silvestre et al. that accounts for multiple structural breaks and cross-sectional dependence. Finally, our results give strong evidence for purchasing power parity when the Balassa-Samuelson version is considered. This finding supports the view that purchasing power parity is most likely to be found among high inflation less developed countries and non-CFA countries. Copyright © 2009 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/ijfe.404
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Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 15 (2010)
Issue (Month): 4 ()
Pages: 307-315

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Handle: RePEc:ijf:ijfiec:v:15:y:2010:i:4:p:307-315
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