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Testing for PPP Using SADC Real Exchange Rates

Thabo Mokoena (), Rangan Gupta () and Renee van Eyden ()
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Thabo Mokoena: South African Reserve Bank, Pretoria

No 200822, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper attempts to provide evidence indicating that the Purchasing Power Parity (PPP) puzzle is becoming less of a puzzle. It present the results of Augmented Dickey-Fuller (ADF) test, nonlinear tests of nonstationarity, and Bayesian unit root tests, applied to ten SADC countries. The Bayesian tests were found to be biased in favour of a trend stationary model in all cases. It is argued that nonlinear approaches to exchange rate adjustments are likely to provide a firmer basis for inference and stronger support for the PPP in the long-term. This is more so at 1 per cent and 5 per cent levels of significance.

Keywords: Purchasing Power Parity; Nonlinear Nonstationarity Tests; Bayesian Unit Root Test (search for similar items in EconPapers)
JEL-codes: C11 C22 F31 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2008-06
New Economics Papers: this item is included in nep-cba and nep-ifn
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