Cointegration Analysis of Purchasing Power Parity in a Small Country Context

T. Ravindiran

No 267914, Department of Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics

Abstract: We present an empirical analysis of a long run Purchasing Power Parity (PPP) for thirteen Asia-Pacific countries using cointegration techniques. Unlike standard unit root hypothesis tests, we specify the null as stationarity and the alternative as a unit root, as introduced by Kwiatkowski et al (1992). We find evidence in favour of a PPP relationship between the Solomon Islands and the US. Despite evidence of a cointegration relationship for a few other countries, the significance of the time trend variable violating a second necessary condition clearly rejects the absolute PPP claim, though there is some evidence of relative PPP. There is no evidence of a trans- Tasman PPP.

Keywords: Research; Methods/Statistical; Methods (search for similar items in EconPapers)
Pages: 32
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Persistent link: https://EconPapers.repec.org/RePEc:ags:monebs:267914

DOI: 10.22004/ag.econ.267914

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