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Purchasing power parity in Asian economies: further evidence from rank tests for cointegration

  • Venus Khim-Sen Liew
  • Hock-Ann Lee
  • Kian-Ping Lim

The finding of nonlinear cointegration between Asian exchange rates with the corresponding relative prices and aggregate price levels based on Breitung's (2001) nonparametric rank tests reinforces previous validations of purchasing power parity (PPP) by the parametric testing procedures. Hence, the long-run Asian exchange rates are in equilibrium with the relevant fundamentals as suggested by the PPP hypothesis.

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Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 16 (2009)
Issue (Month): 1 ()
Pages: 51-54

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Handle: RePEc:taf:apeclt:v:16:y:2009:i:1:p:51-54
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  1. Breitung, Jörg, 1998. "Rank tests for nonlinear cointegration," SFB 373 Discussion Papers 1998,65, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  2. Sargan, John Denis & Bhargava, Alok, 1983. "Testing Residuals from Least Squares Regression for Being Generated by the Gaussian Random Walk," Econometrica, Econometric Society, vol. 51(1), pages 153-74, January.
  3. Alan M. Taylor & Mark Taylor, 2004. "The Purchasing Power Parity Debate," Working Papers 46, University of California, Davis, Department of Economics.
  4. Venus Khim-Sen Liew & Ahmad Zubaidi Baharumshahb & Evan Laub, 2004. "Nonlinear Adjustment towards Purchasing Power Parity in ASEAN Exchange Rates," The IUP Journal of Applied Economics, IUP Publications, vol. 0(6), pages 7-18, November.
  5. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
  6. Venus Khim-Sen Liew & Terence Tai-Leung Chong & Kian-Ping Lim, 2003. "The inadequacy of linear autoregressive model for real exchange rates: empirical evidence from Asian economies," Applied Economics, Taylor & Francis Journals, vol. 35(12), pages 1387-1392.
  7. Taylor, Mark P & Peel, David A & Sarno, Lucio, 2001. "Nonlinear Mean-Reversion in Real Exchange Rates: Toward a Solution to the Purchasing Power Parity Puzzles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1015-42, November.
  8. Lutz Kilian & Mark P. Taylor, 2001. "Why is it so difficult to beat the Random Walk Forecast of Exchange Rates?," Tinbergen Institute Discussion Papers 01-031/4, Tinbergen Institute.
  9. Mark P. Taylor, 2003. "Purchasing Power Parity," Review of International Economics, Wiley Blackwell, vol. 11(3), pages 436-452, 08.
  10. Peter C.B. Phillips & Sam Ouliaris, 1987. "Asymptotic Properties of Residual Based Tests for Cointegration," Cowles Foundation Discussion Papers 847R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1988.
  11. Venus Khim-sen Liew & Ahmad Zubaidi Baharumshah & Terence Tai-leung Chong, 2003. "Are Asian Real Exchange Rates Stationary?," International Finance 0307002, EconWPA, revised 01 Nov 2004.
  12. Mark Taylor, 2006. "Real exchange rates and Purchasing Power Parity: mean-reversion in economic thought," Applied Financial Economics, Taylor & Francis Journals, vol. 16(1-2), pages 1-17.
  13. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
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