Testing the validity of PPP theory for African countries

This study examines the purchasing power parity theory for 14 African countries by applying a recent composite time series method that incorporates the Fourier approximation. The structural breaks are modelled as a gradual smooth process by means of a Fourier component. The Fourier unit root test fa...

Full description

Saved in:
Bibliographic Details
Published in:Applied economics letters 2018-10, Vol.25 (18), p.1273-1277
Main Authors: Yılancı, Veli, Aslan, Murat, Özgür, Önder
Format: Article
Language:English
Subjects:
African countries
Cointegration analysis
Economic models
Economic theory
Economics
Foreign exchange rates
Fourier analysis
Fourier cointegration test
Fourier unit root test
Price levels
Purchasing power parity
Time series
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:This study examines the purchasing power parity theory for 14 African countries by applying a recent composite time series method that incorporates the Fourier approximation. The structural breaks are modelled as a gradual smooth process by means of a Fourier component. The Fourier unit root test failed to find any evidence showing that real exchange rates for these 14 countries have mean-reverting tendencies. However, both cointegration and Fourier cointegration tests detect a stable long-term relation between the nominal exchange rate and relative price levels for 8 out of 14 countries; moreover, for five countries Fourier component in cointegration analysis is found to suit quite well.
ISSN:1350-4851
1466-4291
DOI:10.1080/13504851.2017.1418066