Re-examining Purchasing Power Parity for East-Asian Currencies: 1976-2002

Ahmad Zubaidi Barumshah, Tze-Haw Chan () and Stilianos Fountas
Authors registered in the RePEc Author Service: Ahmad Zubaidi Baharumshah ()

MPRA Paper from University Library of Munich, Germany

Abstract: We investigate the behavior of real exchange rates of six East-Asia countries in relation to their two major trading partners – the US and Japan. These countries, Singapore excepted, were affected by the financial crisis of the fall 1997. Using monthly frequency data from 1976 to 2002 and the ARDL cointegration procedure we test for the long-run PPP hypothesis. We find no evidence for the weak form of PPP in the pre-crisis period but strong evidence in the post-crisis period. For the post-crisis period, we also find very small persistence of PPP deviations as indicated by very small half-lives (less than 7 months) and narrow confidence intervals with an upper bound of 1 year or less in most countries. Our findings reveal that the East Asian countries are returning to some form of PPP-oriented rule as a basis for their exchange rate policies.

Keywords: Purchasing power parity; Asian financial crisis; bounds test; half-lives; confidence intervals (search for similar items in EconPapers)
JEL-codes: C12 C23 F31 F40 (search for similar items in EconPapers)
Date: 2004, Revised 2006
New Economics Papers: this item is included in nep-ifn and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Journal Article: Re-examining purchasing power parity for East-Asian currencies: 1976-2002 (2007)
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