Investigating the PPP Theory and Long-run Estimates for Five Asian Countries

Niri Martha Choji* and Siok Kun Sek
Additional contact information
Niri Martha Choji*: Department of Mathematics Plateau State University Bokkos, Nigeria and School of Mathematical Sciences, Universiti Sains Malaysia, 11800 Minden, Penang, Malaysia
Siok Kun Sek: School of Mathematical Sciences, Universiti Sains Malaysia, 11800 Minden, Penang, Malaysia

The Journal of Social Sciences Research, 2018, 237-242 Special Issue: 2

Abstract: The theory of purchasing power parity posits that the conversion rate between two currencies ought to be the same as the ratio of the total price levels between two currencies. Using monthly panel data for five Asian countries, from the period 1996M01-2016M08, we examine the purchasing power parity hypothesis by utilizing robust methods of panel unit root and cointegration (Pesaran and Westerlund) tests that put into consideration cross-sectional dependence. The panel unit root test results show that all the variables considered are not stationary at levels but stationary at first difference (i.e. all variables are I(1)), because of that, the cointegration test was carried out. Results showed the presence of long-run relationship among the variables implying that the purchasing power parity theory exists in the long-run. Furthermore, the long-run relationships were estimated using the dynamic ordinary least squares (DOLS), fully modified ordinary least squares (FMOLS) and the mean group (MG) estimator. Surprisingly, all these estimators gave similar results, they showed that the domestic prices cause depreciation while the foreign prices cause appreciation of the nominal exchange rates in the five Asian countries. Generally, the effect of nominal exchange rate appreciation is more than depreciation in the five Asian countries.

Keywords: DOLS; FMOLS; MG; Purchasing power parity; Westerlund. (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.arpgweb.com/pdf-files/spi2.72.237-242.pdf (application/pdf)
https://www.arpgweb.com/journal/7/special_issue/11-2018/2/4 (text/html)

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:arp:tjssrr:2018:p:237-242

Access Statistics for this article

The Journal of Social Sciences Research is currently edited by Dr. Paola Magnano

More articles in The Journal of Social Sciences Research from Academic Research Publishing Group Rahim Yar Khan 64200, Punjab, Pakistan.
Bibliographic data for series maintained by Managing Editor ().