Absolute Purchasing Power Parity Hypothesis: The Case of Fragile Five

Nuran Çoşkun ()
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Nuran Çoşkun: Mersin University

Bulletin of Economic Theory and Analysis, 2020, vol. 5, issue 1, 41-55

Abstract: This study, investigates the validity of Purchasing Power Parity hypothesis for Turkey, Brazil, India, Indonesia and South Africa between the period 1994:01-2018:11. According to the nonlinearity results, real exchange rate series has non-linear form. Furthermore, since the real exchange rate series has smooth and/or sharp breaks (shifts) with nonlinear forms, the stationary of the series were investigated by using nonlinear unit root test which is suggested by Ranjbar, Chang, Elmi & Lee (2018). Ranjbar et al. (2018) revealed that the real exchange rate of South Africa is stationary under symmetric form and the real exchange rate of India is stationary under asymmetric form. Therefore, the results indicate that PPP does not hold for Turkey, Brazil and Indonesia while it holds for South Africa and India.

Keywords: Purchasing Power Parity; Real Exchange Rate; Monetary Policy; Fragile Five Countries; Nonlinear Time Series; Nonlinear Unit Root (search for similar items in EconPapers)
JEL-codes: F00 F31 F40 (search for similar items in EconPapers)
Date: 2020
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