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Does long-run purchasing power parity hold in Eastern and Southern African countries? Evidence from panel data stationary tests with multiple structural breaks

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  • Jean-François Hoarau

    (CEMOI - Centre d'Économie et de Management de l'Océan Indien - UR - Université de La Réunion)

Abstract

This study tests for the long-run purchasing power parity hypothesis for a panel of 17 African economies, all belonging to the Common Market for Eastern and Southern Africa, over the period 1970–2007. This assumption is considered both in its traditional view, that is, the reversion of the real exchange rate (RER) to a constant mean, and in the Balassa-Samuelson view, that is, the reversion of the RER to a constant trend. For this purpose, we use the new panel data stationary test advocated by Carrion-i-Silvestre et al. that accounts for multiple structural breaks and cross-sectional dependence. Finally, our results give strong evidence for purchasing power parity when the Balassa-Samuelson version is considered. This finding supports the view that purchasing power parity is most likely to be found among high inflation less developed countries and non-CFA countries. Copyright © 2009 John Wiley & Sons, Ltd.

Suggested Citation

  • Jean-François Hoarau, 2010. "Does long-run purchasing power parity hold in Eastern and Southern African countries? Evidence from panel data stationary tests with multiple structural breaks," Post-Print hal-01243461, HAL.
    • Handle: RePEc:hal:journl:hal-01243461
    DOI: 10.1002/ijfe.404
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    2. Saint Kuttu, 2018. "Asymmetric mean reversion and volatility in African real exchange rates," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(3), pages 575-590, July.
    3. E. N. Gyamfi & E. F. Appiah, 2019. "Further evidence on the validity of purchasing power parity in selected African countries," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 43(2), pages 330-343, April.
    4. Gómez Aguirre Mario & Rodríguez Chávez José Carlos, 2013. "El efecto Harrod-Balassa-Samuelson. El caso de México," Contaduría y Administración, Accounting and Management, vol. 58(3), pages 121-147, julio-sep.
    5. Mario Gómez Aguirre & José Carlos A. Rodríguez Chávez, 2012. "Análisis de la paridad del poder de compra: evidencia empírica entre México y Estados Unidos," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 27(1), pages 169-207.

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