Purchasing power parity in major OPEC countries: flexible Fourier stationary test

Chi-Wei Su, Yu-Shao Liu, Meng-Nan Zhu and Kuei-Chiu Lee

Applied Economics Letters, 2012, vol. 19, issue 1, 19-24

Abstract: This study applies stationary test with a Fourier function proposed by Enders and Lee (2004, 2009) to test the validity of long-run Purchasing Power Parity (PPP) to assess the nonstationary properties of the Real Exchange Rates (RERs) for seven major countries of the Organization of the Petroleum Exporting Countries (OPEC). We find that our approximation has higher power to detect U-shaped breaks and smooth breaks than linear method if the true Data-Generating Process (DGP) of exchange rate is in fact a stationary nonlinear process. We examine the validity of PPP from the nonlinear point of view and provide robust evidence that clearly indicates that PPP holds true for six countries, namely Algeria, Angola, Indonesia, Kuwait, Nigeria and Saudi Arabia. Our findings point out their exchange rate adjustment mean-reverts towards PPP equilibrium values in a nonlinear way.

Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/13504851.2011.564128 (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:taf:apeclt:v:19:y:2012:i:1:p:19-24

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEL20

DOI: 10.1080/13504851.2011.564128

Access Statistics for this article

Applied Economics Letters is currently edited by Anita Phillips

More articles in Applied Economics Letters from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().