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Purchasing power parity in ASEAN-5 countries: revisit with cross-sectional dependence and structural breaks

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  • Qaiser Munir
  • Sook Ching Kok
  • Hooi Hooi Lean
  • Tamara Teplova

Abstract

This paper re-examines the purchasing power parity (PPP) hypothesis for a panel of ASEAN-5 countries. The panel unit root and cointegration tests, which incorporate cross-sectional dependence and multiple structural breaks, are innovatively used for testing the PPP hypothesis. We could not find evidence that supports the existence of a long-run equilibrium between the relative price ratio and the nominal exchange rate for the whole period. Nevertheless, there is evidence of a cointegrating relationship for the post-crisis period. Our finding implies that a flexible exchange rate regime is suitable for the individual ASEAN countries.

Suggested Citation

  • Qaiser Munir & Sook Ching Kok & Hooi Hooi Lean & Tamara Teplova, 2018. "Purchasing power parity in ASEAN-5 countries: revisit with cross-sectional dependence and structural breaks," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 11(3), pages 233-249, September.
    • Handle: RePEc:taf:macfem:v:11:y:2018:i:3:p:233-249
    DOI: 10.1080/17520843.2018.1505760
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    Cited by:

    1. Yoon, Jong Cheol & Min, Dai Hong & Jei, Sang Young, 2020. "Purchasing power parity vs. uncovered interest rate parity for NAFTA countries: The value of incorporating time-varying parameter model," Economic Modelling, Elsevier, vol. 90(C), pages 494-500.

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