Cointegration, dynamic structure, and the validity of purchasing power parity in African countries

Augustine C. Arize, John Malindretos and Kiseok Nam

International Review of Economics & Finance, 2010, vol. 19, issue 4, 755-768

Abstract: The purpose of this paper is to test the validity of the purchasing power parity (PPP) in Africa in the context of a multivariate error-correction model. This approach allows for the consideration of long-run elasticities as well as the dynamics of the short-run adjustment of exchange rates to changes in domestic and foreign prices. Monthly data for fourteen African countries are used, and the period examined is 1973:4 through 2007:7 (i.e., 412 observations). Results from long-run cointegration analysis, short-run error correction models, persistence profile analysis and variance decomposition all confirm the validity of PPP in these moderate-to-high inflation countries, where estimates of half-life deviations from PPP are found to be outside the range suggested by Rogoff (1996).

Keywords: PPP; Real; exchange; rate; Econometric; analysis (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:19:y:2010:i:4:p:755-768

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