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Testing the Purchasing Power Parity Theory: A Case of the Taiwanese Dollar Exchange Rate


  • Tsurumi, Hiroki

    () (Rutgers University)

  • L. Chen, Chyong

    (Feng Chia University)


From July 1978 to April 1989 Taiwan adopted a snake system by allowing the foreign exchange rate to fluctuate within a narrow band of the centered rate. Using monthly data on the Taiwan dollar/U.S. dollar exchange rate, we show that inference on the purchasing power parity hypothesis is sensitive to whether we incorporate double truncation and autoregressive and moving average error terms into the regression model.

Suggested Citation

  • Tsurumi, Hiroki & L. Chen, Chyong, 1998. "Testing the Purchasing Power Parity Theory: A Case of the Taiwanese Dollar Exchange Rate," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 13, pages 232-254.
  • Handle: RePEc:ris:integr:0073

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    Cited by:

    1. Goldman Elena & Tsurumi Hiroki, 2005. "Bayesian Analysis of a Doubly Truncated ARMA-GARCH Model," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 9(2), pages 1-38, June.
    2. repec:eco:journ1:2017-02-11 is not listed on IDEAS

    More about this item


    Purchasing; Power; Parity; Theory;

    JEL classification:

    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General


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