Purchasing Power Parity of Papua New Guinea: evidence from the floating exchange rate regime
This study examines the validity of the Purchasing Power Parity (PPP) hypothesis to a developing country such as Papua New Guinea during the floating exchange rate regime. The empirical analysis was performed using recently developed Ng-Perron (2001) unit root tests which are more powerful than widely-used Dickey-Fuller-type unit roots. Ng-Perron test results indicate that the four real exchange rates (Australian dollar, Japanese yen, UK pound and US dollar) are non-stationary. Further, a comparison of exchange rates that should prevail under the PPP with actual exchange rates provides evidence that the kina was undervalued during the sample period. These results are inconsistent with the PPP and have implications for policy makers and participants of the foreign exchange market of Papua New Guinea.
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Volume (Year): 1 (2005)
Issue (Month): 6 (November)
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References listed on IDEAS
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- Caporale, Guglielmo Maria & Kalyvitis, Sarantis & Pittis, Nikitas, 2001. "Testing for PPP and UIP in an FIML framework: Some evidence for Germany and Japan," Journal of Policy Modeling, Elsevier, vol. 23(6), pages 637-650, August.
- Serena Ng & Pierre Perron, 2001.
"LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power,"
Econometric Society, vol. 69(6), pages 1519-1554, November.
- Serena Ng & Pierre Perron, 1997. "Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power," Boston College Working Papers in Economics 369, Boston College Department of Economics, revised 01 Sep 2000.
- Nagayasu, Jun, 2002. "Does the Long-Run PPP Hypothesis Hold for Africa? Evidence from a Panel Cointegration Study," Bulletin of Economic Research, Wiley Blackwell, vol. 54(2), pages 181-187, April.
- L. Achy, 2003. "Parity reversion persistence in real exchange rates: middle income country case," Applied Economics, Taylor & Francis Journals, vol. 35(5), pages 541-553.
- Gil-Alana, Luis A., 2000. "Mean reversion in the real exchange rates," Economics Letters, Elsevier, vol. 69(3), pages 285-288, December.
- Azali, M. & Habibullah, M. S. & Baharumshah, A. Z., 2001. "Does PPP hold between Asian and Japanese economies? Evidence using panel unit root and panel cointegration," Japan and the World Economy, Elsevier, vol. 13(1), pages 35-50, January.
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