Currency harmonisation in the Southern African Development Community: a pathway to addressing the PPP puzzle

Joe Maganga Zonda () and Dinarti Tarigan
Additional contact information
Joe Maganga Zonda: Kamuzu University of Health Sciences
Dinarti Tarigan: PSDKU President University

Palgrave Communications, 2025, vol. 12, issue 1, 1-18

Abstract: Abstract Over a century since its inception, the purchasing power parity (PPP) theory, linking exchange rates to relative prices, remains one of the most widely accepted and influential theories in international economics. Despite its theoretical appeal, the empirical validity of PPP remains highly contentious. This study examines the empirical support for PPP within the Southern African Development Community (SADC) region. We employ a battery of linear and ESTAR nonlinear unit root tests, panel stationarity tests, and multivariate cointegration analysis on two distinct numéraire currencies—US dollar and the South African rand (ZAR)—alongside consumer price index (CPI) data for 14 SADC countries over the monthly period 1990:01–2022:04. To this end, we test two important hypotheses in the literature on whether the empirical validity of PPP is influenced by the: (i) ‘numéraire currency’ effect, and (ii) ‘border’ effect. Overall, our findings lend overwhelming support to both of these conjectures. Further evidence suggests that the half-life of parity reversion is significantly shorter for the ZAR-based real exchange rates. These findings imply that SADC meets the optimum currency area (OCA) requirements, making the proposed monetary union a promising prospect.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1057/s41599-025-04496-6 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:palcom:v:12:y:2025:i:1:d:10.1057_s41599-025-04496-6

Ordering information: This journal article can be ordered from
https://www.nature.com/palcomms/about

DOI: 10.1057/s41599-025-04496-6

Access Statistics for this article

More articles in Palgrave Communications from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().