Long-run PPP in a system context: No favorable evidence after all for the U.S., Germany, and Japan

Cushman, David O.

doi:10.1016/j.intfin.2008.05.001

Cited by 3 publications

(2 citation statements)

References 32 publications

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“…Furthermore, studies have used the PPP hypothesis to explain the long-run relationship between the exchange rate of two currencies and the price levels of the integrating countries with mixed results. For instance studies such as Cushman (2008) and Crowder (1996) reject the validity of PPP in the long run. While studies by Cheung and Lai (1993), Cheung, Lai, and Bergman (2004), Arize, Malindretos, and Nam (2010), and Arize, Malindretos, and Ghosh (2015) suggested the validity of PPP in the long run.…”

Section: Introductionmentioning

confidence: 99%

Validity of Purchasing Power Parity (PPP) Hypothesis in the Ecowas (1980–2017)

Nathaniel

2019

Emerging Economy Studies

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This study investigates the validity of a purchasing power parity (PPP) hypothesis in the ECOWAS. Secondary data on real exchange rates, domestic inflation rates, and foreign inflation rates were sourced from the World Development Indicators of the World Bank (2018). Unit root tests, Panel unit root tests, and panel cointegration tests were used to investigate the validity of the PPP hypothesis in the ECOWAS. The study found that the PPP hypothesis is valid individually in all the ECOWAS member countries. The results from the panel unit root tests also confirm the validity of the PPP hypothesis in the ECOWAS. Specifically, the LLC with individual intercept ( t = −5.97117, p < 0.0000), IPS with individual intercept ( t = −3.30564; p < 0.0000), Fisher ADF with individual intercept ( t = −3.43996; p < 0.0003), and Fisher PP with individual intercept ( t = −5.91557; p < 0.0000) while the panel cointegration test rejects the validity of the PPP hypothesis. Therefore, the study suggests that the ECOWAS can cautiously forge ahead with the implementation of their economic integration policies and programs in the sub-region.

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Section: Introductionmentioning

confidence: 99%

Validity of Purchasing Power Parity (PPP) Hypothesis in the Ecowas (1980–2017)

Nathaniel

2019

Emerging Economy Studies

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“…Although a number of studies have taken cognisance of the reality that some of the variables should be treated as weakly exogenous when testing the PPP hypothesis in the context of cointegrating VAR, these studies did not specify a sub-system within which these exogenous variables should be determined (see Lacerda et al, 2010;Sideris, 2006;Cushman, 2008). In fact, without a sub-system within which exogenous variables are determined, these variables are treated as strongly rather than weakly exogenous.…”

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confidence: 99%

Testing For The Purchasing Power Parity Hypothesis In A Small Open Economy: A VAR-X Approach

Bonga‐Bonga

2011

IBER

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This paper tests the purchasing power parity (PPP) hypothesis for the rand-US dollar exchange rate by making use of the cointegrating VAR-X approach. Given that the test of PPP hypothesis conducted in this paper involves variables of a small economy, South Africa, compared to a big economy, the US, the paper contends that traditional cointegrating VAR approach that considers all variables in a given vector as endogenous is not suitable. The results of the paper show that the restriction applied in the cointegrating vector for the VAR-X model supports the weak-form PPP hypothesis. The same restrictions are rejected in the case of traditional cointegrating VAR model. The paper concludes that it is essential to distinguish between weakly exogenous and endogenous variables in tests of the PPP hypothesis that involve small and big economies.

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