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
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
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Journal Article: TESTING FOR PPP USING SADC REAL EXCHANGE RATES (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:200822
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