Testing the validity of PPP theory for African countries

Veli Yilanci, Murat Aslan and Önder Özgür ()

Applied Economics Letters, 2018, vol. 25, issue 18, 1273-1277

Abstract: This study examines the purchasing power parity theory for 14 African countries by applying a recent composite time series method that incorporates the Fourier approximation. The structural breaks are modelled as a gradual smooth process by means of a Fourier component. The Fourier unit root test failed to find any evidence showing that real exchange rates for these 14 countries have mean-reverting tendencies. However, both cointegration and Fourier cointegration tests detect a stable long-term relation between the nominal exchange rate and relative price levels for 8 out of 14 countries; moreover, for five countries Fourier component in cointegration analysis is found to suit quite well.

Date: 2018
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DOI: 10.1080/13504851.2017.1418066

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