New evidence on real exchange rate stationarity and purchasing power parity in less developed countries

Holmes, Mark J.

doi:10.1016/s0164-0704(01)00180-x

Cited by 74 publications

(63 citation statements)

References 27 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…The major policy implication that emerges from this study is that PPP can be used to determine the equilibrium exchange rate for these six African countries. Our findings are consistent with Holmes (2001) that we can use PPP to predict exchange rate that determine whether a currency is over or undervalued and experiencing difference between domestic and foreign inflation rates. Other countries experienced real shocks, such as droughts, reductions in the terms of trade, oil price shocks, civil wars and other forms of political instability during the past three decades.…”

Section: Data and Empirical Resultssupporting

confidence: 89%

Threshold effects in purchasing power parity for African Countries

Yu-Shao¹,

Liu²,

Mengnan³

et al. 2011

Afr. J. Bus. Manage.

View full text Add to dashboard Cite

This study applies non-linear threshold unit-root test to assess the non-stationary properties of the real exchange rate for twenty African countries. We found that non-linear threshold unit-root test has higher power than linear method. As suggested by Caner and Hansen (2001), the true data generating process of exchange rate is a stationary non-linear process. We examine the validity of PPP from the non-linear point of view and provide robust evidence clearly indicating that purchasing power parity (PPP) holds true for six countries, namely; Egypt, Ethiopia, Gambia, Malawi, Seychelles and South Africa. Our findings point out their exchange rate adjustment is mean reversion towards PPP equilibrium values in a non-linear way.

show abstract

Section: Data and Empirical Resultssupporting

confidence: 89%

Threshold effects in purchasing power parity for African Countries

Yu-Shao¹,

Liu²,

Mengnan³

et al. 2011

Afr. J. Bus. Manage.

View full text Add to dashboard Cite

show abstract

“…There is a greater tendency for long-run PPP to hold (i) in high inflation African less developed countries, and (ii) for non-CFA economies than for CFA economies. If we define a high inflation country as one which experienced an average annual inflation rate 16 in excess of 10 per cent over the sample period 1970-2006, then we put forward that 12 economies (Egypt, Eritrea, Kenya, Libya, Madagascar, Malawi, Sudan, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe) out of 17 can be classified as a high 1995;20014 19941997;Egypt 0 -3 19771996;Erithrea 0 -5 19721976;1989;1995Ethiopia 2 19943 19931996;Kenya 1 19750 -Libya 2 199320024 19911994;1998;2002Madagascar 2 19934 19921995;Malawi 0 -3 19901994;1997Mauritus 2 199220024 19911994;1998;2002Uganda 2 19944 19751993;1996;Seychelles 0 -3 19741993;1996Sudan 0 -4 19901993;1997;2001Swaziland 2 1992…”

Section: Empirical Findings From the CDL Testmentioning

confidence: 99%

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

Hoarau¹

2009

Int. J Fin Econ

View full text Add to dashboard Cite

International audienceThis 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

show abstract

“…The BDS test detects the independent and identically distributed (iid) assumption of the time series used in the analysis, while the Fourier approximation mimics a wide variety of breaks and other types of nonlinearities. The investigation of nonlinearities and asymmetries in macroeconomic behaviour constitutes an increasingly popular area of empirical research ( Holmes, 2001 andSu et al, 2014). A prior study in the SADC region (Mokoena, et al, 2009) using real exchange rates argued that non-linear approaches to exchange rate adjustments are likely to provide a firmer basis for inference and stronger support for PPP in the long term in the region.…”

Section: Introductionmentioning

confidence: 99%