Purchasing power parity in ASEAN-5 countries: revisit with cross-sectional dependence and structural breaks

Qaiser Munir (), Sook Ching Kok, Hooi Hooi Lean () and Tamara Teplova

Macroeconomics and Finance in Emerging Market Economies, 2018, vol. 11, issue 3, 233-249

Abstract: This paper re-examines the purchasing power parity (PPP) hypothesis for a panel of ASEAN-5 countries. The panel unit root and cointegration tests, which incorporate cross-sectional dependence and multiple structural breaks, are innovatively used for testing the PPP hypothesis. We could not find evidence that supports the existence of a long-run equilibrium between the relative price ratio and the nominal exchange rate for the whole period. Nevertheless, there is evidence of a cointegrating relationship for the post-crisis period. Our finding implies that a flexible exchange rate regime is suitable for the individual ASEAN countries.

Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:taf:macfem:v:11:y:2018:i:3:p:233-249

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DOI: 10.1080/17520843.2018.1505760

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