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Does long-run purchasing power parity hold in Eastern and Southern African countries? Evidence from panel data stationary tests with multiple structural breaks

Jean-François Hoarau ()

International Journal of Finance & Economics, 2010, vol. 15, issue 4, 307-315

Abstract: This study tests for the long-run purchasing power parity hypothesis for a panel of 17 African economies, all belonging to the Common Market for Eastern and Southern Africa, over the period 1970-2007. This assumption is considered both in its traditional view, that is, the reversion of the real exchange rate (RER) to a constant mean, and in the Balassa-Samuelson view, that is, the reversion of the RER to a constant trend. For this purpose, we use the new panel data stationary test advocated by Carrion-i-Silvestre et al. that accounts for multiple structural breaks and cross-sectional dependence. Finally, our results give strong evidence for purchasing power parity when the Balassa-Samuelson version is considered. This finding supports the view that purchasing power parity is most likely to be found among high inflation less developed countries and non-CFA countries. Copyright © 2009 John Wiley & Sons, Ltd.

Date: 2010
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