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Currency evaluation using a big mac index for Thailand – lessons for Vietnam

Duc Vo () and Anh Vo ()
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Duc Vo: Ho Chi Minh City Open University
Anh Vo: Ho Chi Minh City Open University

Economics Bulletin, 2017, vol. 37, issue 2, 999-1011

Abstract: The study is conducted to evaluate Thailand's currency using both Consumer Price Index (CPI) and Big Mac Index (BMI) over the period of 1980-2013. The measurement of long-run equilibrium exchange rate is based on the purchasing power parity (PPP) using panel unit root test, panel co-integration test, and the fully modified ordinary least squares method. Empirical results from this study confirm a solid validity of PPP for CPI-based exchange rate and a weak evidence for BMI-based exchange rate. As for Thailand's currency evaluation, the result illustrates that (i) the CPI-based exchange rate provides a relatively consistent result with BMI-based exchange rate, with the exception of the 1997 Asian financial crisis and that (ii) the BMI-based exchange rate is more superior when bilaterally being evaluated between Thai Baht and US Dollar. Some lessons can be drawn for policy for both Thailand and Vietnam.

Keywords: Exchange Rate; Currency Evaluation; Purchasing Power Parity; Big Mac Parity; Panel Cointegration Test; Fully Modified Ordinary Least Square (FMOLS) (search for similar items in EconPapers)
JEL-codes: E3 F3 (search for similar items in EconPapers)
Date: 2017-05-05
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