An Empirical Test of Purchasing Power Parity Theory for Canadian Dollar-US Dollar Exchange Rates

Al-Zyoud, Hussein

doi:10.5539/ijef.v7n3p233

Cited by 12 publications

(7 citation statements)

References 37 publications

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“…These results reinforce the study conducted by Pattinasarany (1997) for the case of Indonesia that there is no co-integration between the change in the exchange rate with the inflation rate in the consumer price index price level, other studies support the no co-integration in the long run is Hoque (1995), Edison (1997), Menezes & Resende (1995), Al-Zyoud (2015). And vice versa study Pippenger (1993) and Ramirez & Khan (1999) that the PPP hypothesis applies to long-term.…”

Section: Resultssupporting

confidence: 79%

Validity test of purchasing power parity doctrine: An Indonesian case study

Sidiq

Herawati

2016

EJEM

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The goal of this study is to analyze the doctrine purchasing power parity (PPP) in Indonesia with the case study of the rupiah exchange rate to U.S. dollar. The autoregressive is used to estimate the relationship between the change of exchange rate and the difference Indonesia-USA inflation rate. The data used in this study are quarterly data obtained from the International Financial Statistics (IFS) and Bank Indonesia (BI) with the period 1997Q4-2013Q4. The exchange rate that used in this study is using the rate on rupiah to U S dollar. The price data used consumer price index in Indonesia and the United States with a base year of 2000. The results of this study show, that rupiah to the U.S. dollar is undervalued during the free floating exchange rate system and, the PPP doctrine to the case of the rupiah to the U.S. dollar is not valid in the period of this study. AbstrakTujuan dari penelitian ini untuk menganalisis dokrin paritas daya beli (PPP) dengan studi kasus nilai tukar rupiah terhadap dolar Amerika Serikat. Dalam penelitian ini menggunakan alat analisis autoregresif untuk mengestimasi hubungan antara perubahan nilai tukar rupiah dengan perbedaan tingkat inflasi Indenesia-Amerika Serikat. Data yang digunakan adalah data kuartalan dari Internatioanal Financial Statistics (IFS) dan Bank Indonesia dengan peride waktu 1997Q4-2013Q4. Hasil dari penelitian ini menunjukkan pertama bahwa nilai tukar rupiah terhadap dolar Amerika Serikat dinilai terlalu rendah (undervaled) pada sistem nilai tukar mengambang bebas. Kedua, Dokrin PPP tidak berlaku selama periode penelitian.

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Section: Resultssupporting

confidence: 79%

Validity test of purchasing power parity doctrine: An Indonesian case study

Sidiq

Herawati

2016

EJEM

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“…In most economies where long-run PPP theory holds, it helps to determine the extent to which a currency is misaligned (over-or under-valued). Al-Zyoud (2015) argued that a decline (rise) in a country's domestic purchasing power will be connected to a proportionate depreciation (appreciation) of its currency on the foreign exchange market to reflect the PPP. This implies that where the foreign exchange market does not respond correspondingly to the decline (rise) in the purchasing power, then the exchange rate becomes inappropriate or misaligned.…”

Section: -75mentioning

confidence: 99%

Purchasing Power Parity Approach to Exchange Rate Misalignment in Nigeria

Nakorji¹,

Agboegbulem²,

Gaiya³

et al. 2021

CBN-JAS

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This study examines the purchasing power parity (PPP) approach to the determination of exchange rate misalignment in Nigeria by using two variants of the PPP: the absolute PPP (aPPP) and the relative PPP (rPPP). Data on the Nigerian Naira to US Dollar ( N/$), British Pound ( N/£) and Chinese Yuan (N /¥) interbank exchange rates, Nigeria consumer price index and Inflation as well as the US, UK and China consumer price indices and inflation rates spanning 2008:M1 to 2018:M12 were utilized. A recently modified fractional cointegration framework was employed, taking care of smooth structural breaks and nonlinearity, while the unit root tests employed the fractional alternatives. The results confirmed that the aPPP approach to exchange rate determination is unrealistic but revealed empirical support for the rPPP approach. Furthermore, the exchange rates computed with the rPPP approach show that the interbank Naira to US Dollar, UK Pounds and Chinese Yuan exchange rates were overvalued in most of the period of this study. The period of undervaluation observed in June 2016 and April 2017 coincided with the periods when CBN introduced the investors and exporters window. The study recommends the use of rPPP for gauging the level of exchange rate misalignment in Nigeria and suggests the need to diversify the export base to appreciate the exchange rate.

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“…Nevertheless, there are arguments that the efficacy of purchasing power parity is influenced by causes other than inflation, such as central banks' currency intervention, trade barriers, transaction rates and other variables (Al-Zyoud, 2015;Frankel, 1981;Rogoff, 1996). In addition, the link between inflation and currency depreciation appears to decline from year to year, according to Taylor and Taylor (2014), and researchers are thus starting to question the efficacy of the quantitative parity of buying power.…”

Section: Relative Purchasing Power Paritymentioning

confidence: 99%

The Impact of Monetary Variables on Exchange Rate in Malaysia From 2013 Until 2015

Geetha

2020

MJBE

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This research aims to study the relationship between exchange rate and this study’s independent variables which are, inflation rate, interest rate and foreign exchange reserve in Malaysia. Secondary data from period of 2013 M1 until 2015 M12, which was retrieved from Bloomberg Data. This study uses empirical tools which is E-Views 11 to compute the variables data into empirical result. The results obtained showed that there is a positive insignificant relationship between inflation rate and exchange rate. However, for interest rate, this study found that there is a negative insignificant relationship between interest rate and exchange rate which implies that interest rate has a negative correlation with exchange rate. Further, based on the result of this study, negative relationship is obtained between foreign reserve money and exchange rate which means when there are trends of increase export and remittance will have positive effect on exchange rate while when there is a trend of increase import and foreign reserve money gave a negative impact on exchange rate. As predicted by the literature review, inflation rate and interest rate should have a negative relationship between exchange rate and foreign exchange reserve should have a positive relationship between exchange rate. Yet, this study found an inverse and slightly different compared with the pasted researches done by many researchers. As this study have its limitations, thus recommendations are suggested for researches that will be done in future.

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An Empirical Test of Purchasing Power Parity Theory for Canadian Dollar-US Dollar Exchange Rates

Cited by 12 publications

References 37 publications

Validity test of purchasing power parity doctrine: An Indonesian case study

Validity test of purchasing power parity doctrine: An Indonesian case study

Purchasing Power Parity Approach to Exchange Rate Misalignment in Nigeria

The Impact of Monetary Variables on Exchange Rate in Malaysia From 2013 Until 2015

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