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The Validity of Purchasing Power Parity Hypothesis in Middle East and Northern Africa Countries

Author

Listed:
  • Kalyoncu, Hüseyin

    () (Meliksah University, Faculty of Economics and Administrative Sciences, Department of International Trade and Business, Kayseri, Turkey)

  • Kula, Ferit

    () (Erciyes University, Faculty of Economics and Administrative Sciences, Department of Economics, Kayseri, Turkey)

  • Aslan, Alper

    () (Meliksah University, Faculty of Economics and Administrative Sciences, Department of International Trade and Business, Kayseri, Turkey)

Abstract

This paper re-examines the Purchasing Power Parity (PPP) hypothesis in which the endogenously determined break points are incorporated in thirteen major Middle East and Northern Africa (MENA) countries by using official and black market exchange rates data over 1970-1998. We utilize Lagrange Multiplier (LM) unit root test that endogenously determines structural breaks in level and trend. We find evidence of PPP for all countries using official and/or black market real exchange rates at the 10% level or better.

Suggested Citation

  • Kalyoncu, Hüseyin & Kula, Ferit & Aslan, Alper, 2010. "The Validity of Purchasing Power Parity Hypothesis in Middle East and Northern Africa Countries," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 125-131, December.
  • Handle: RePEc:rjr:romjef:v::y:2010:i:4:p:125-131
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    References listed on IDEAS

    as
    1. Huseyin Kalyoncu, 2009. "New evidence of the validity of purchasing power parity from Turkey," Applied Economics Letters, Taylor & Francis Journals, vol. 16(1), pages 63-67.
    2. Junsoo Lee & Mark C. Strazicich, 2013. "Minimum LM unit root test with one structural break," Economics Bulletin, AccessEcon, vol. 33(4), pages 2483-2492.
    3. Strazicich, Mark C. & Lee, Junsoo & Day, Edward, 2004. "Are incomes converging among OECD countries? Time series evidence with two structural breaks," Journal of Macroeconomics, Elsevier, vol. 26(1), pages 131-145, March.
    4. Lucio Sarno & Mark P. Taylor, 2002. "Purchasing Power Parity and the Real Exchange Rate," IMF Staff Papers, Palgrave Macmillan, vol. 49(1), pages 1-5.
    5. Syed Abul Basher & Mohammed Mohsin, 2004. "PPP tests in cointegrated panels: evidence from Asian developing countries," Applied Economics Letters, Taylor & Francis Journals, vol. 11(3), pages 163-166.
    6. Froot, Kenneth A. & Rogoff, Kenneth, 1995. "Perspectives on PPP and long-run real exchange rates," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 32, pages 1647-1688 Elsevier.
    7. Narayan Paresh K & Prasad Biman Chand, 2005. "The Validity of Purchasing Power Parity Hypothesis for Eleven Middle Eastern Countries," Review of Middle East Economics and Finance, De Gruyter, vol. 3(2), pages 44-58, August.
    8. Kul B. Luintel, 2000. "Real exchange rate behaviour: evidence from black markets," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(2), pages 161-185.
    9. Bahmani-Oskooee, Mohsen, 1998. "Do exchange rates follow a random walk process in Middle Eastern countries?," Economics Letters, Elsevier, vol. 58(3), pages 339-344, March.
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    More about this item

    Keywords

    Purchasing Power Parity (PPP); Real exchange rate; Black market; Exchange rates; Unit-root test; Structural break;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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