Purchasing Power Parity and the Real Exchange Rate in Bangladesh: A Nonlinear Analysis

Ibrahim Chowdhury

Journal of the Asia Pacific Economy, 2007, vol. 12, issue 1, 61-75

Abstract: The long-run purchasing power parity (PPP) hypothesis is examined using data for Bangladesh and four trading partners – the US, Euro area, Japan and India – during the period 1994 to 2002. We apply recently developed nonlinear econometric techniques and provide strong evidence for highly nonlinear mean-reversion of real bilateral Bangladesh taka exchange rates toward a stable long-run equilibrium. Our findings imply strong support for the validity of long-run PPP as well as for the theoretical models that predict nonlinear adjustment in real exchange rates.

Date: 2007
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Working Paper: Purchasing Power Parity and the Real Exchange Rate in Bangladesh: A Nonlinear Analysis (2004)
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DOI: 10.1080/13547860601083736

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