PURCHASING POWER PARITY IN A TRANSITION ECONOMY-CAMBODIA: EVIDENCE FROM BILATERAL EXCHANGE RATES

This study examines the validity of the Purchasing Power Parity (PPP) hypothesis for Cambodia. The standard unit root tests (Augmented Dickey-Fuller and Phillips-Perron) and the panel unit root tests fail to support the PPP hypothesis for nine of Cambodia's trading partners. The unit root tests...

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Bibliographic Details
Published in:The Asia Pacific journal of economics & business 2010-06, Vol.14 (1), p.55
Main Authors: Tang, Tuck Cheong, Liew, Venus Khim-Sen
Format: Article
Language:English
Subjects:
American dollar
Consumer Price Index
Currency
Economic crisis
Efficient markets
Foreign exchange rates
Hypotheses
International finance
International relations
Literature reviews
Macroeconomics
Market economies
Purchasing power parity
Studies
Tourism
Transition economies
Validity
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Summary:This study examines the validity of the Purchasing Power Parity (PPP) hypothesis for Cambodia. The standard unit root tests (Augmented Dickey-Fuller and Phillips-Perron) and the panel unit root tests fail to support the PPP hypothesis for nine of Cambodia's trading partners. The unit root tests with structural break, however, support the PPP hypothesis for the bilateral real exchange rates of the euro, Indonesian rupiah, Malaysian ringgit and Singaporean dollar. This finding is found to be relevant for a 'de-dollarization' strategy in Cambodia, and in responding to the recent global financial crisis. [PUBLICATION ABSTRACT]
ISSN:1326-8481