Empirical conditional quantile test for purchasing power parity: Evidence from East Asian countries
Haiqi Li and
Sung Y. Park ()
International Review of Economics & Finance, 2017, vol. 49, issue C, 211-222
This paper develops empirical tests for the purchasing power parity (PPP) hypothesis for China, Japan and South Korea by using the quantile unit root and quantile cointegrating regression method. Unlike the conventional unit root and cointegration methods, we test for the validity of the PPP hypothesis at both the quantile interval and the single quantile level. While conventional nonlinear models could also capture the regime switching behaviour, the quantile approach enables us to avoid choosing the appropriate form of nonlinearity, and therefore, avoid the misspecification risk. When conventional methods are used, the PPP hypothesis is not strongly supported for all three countries. However, when the quantile-based approach is used, the PPP hypothesis holds for China at some quantile levels when producer price index (PPI) is used as price variable, and it also holds for Japan over the lower and upper quantile levels. Interestingly, the PPP hypothesis for South Korea holds over all quantile levels when the consumer price index (CPI) is used as the price variable.
Keywords: Purchasing power parity; Quantile unit root; Quantile cointegration (search for similar items in EconPapers)
JEL-codes: C12 C22 F31 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:49:y:2017:i:c:p:211-222
Access Statistics for this article
International Review of Economics & Finance is currently edited by H. Beladi and C. Chen
More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().