Does the purchasing power parity fit for China?

Kai-Hua Wang, Chi-Wei Su, Ran Tao and De-Ping Xiong

Economic Research-Ekonomska Istraživanja, 2019, vol. 32, issue 1, 2028-2043

Abstract: This paper aims to assess whether the purchasing power parity (PPP) holds by examining the dynamic link between nominal exchange rate (NER) and relative consumer price (RCP) in China. With economic transitions and structural changes existing, we discover that by using full sample data the PPP does not hold. Consequently, we apply the rolling window causality method in order to reconsider the dynamic causal link, and as a result we observe NER having both positive and negative impacts on RCP in some sub-periods. However, RCP has no effect on the NER, meaning that the PPP does not hold. Trade cost, restrictions and imperfect competition are considered in explaining the deviations in some sub-sample periods. Therefore, this empirical result has important implications for stakeholders to distinguish factors that bring about the PPP deviations and further offers policy suggestions for the Chinese monetary authority.

Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1080/1331677X.2019.1637763 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:reroxx:v:32:y:2019:i:1:p:2028-2043

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/rero20

DOI: 10.1080/1331677X.2019.1637763

Access Statistics for this article

Economic Research-Ekonomska Istraživanja is currently edited by Marinko Skare

More articles in Economic Research-Ekonomska Istraživanja from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().