TESTING FOR PPP USING SADC REAL EXCHANGE RATES

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 test, non‐linear tests of non‐stationarity and Bayesian unit root tests, applied to 10 Southern African Development Communi...

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Bibliographic Details
Published in:The South African Journal of economics 2009-09, Vol.77 (3), p.351-362
Main Authors: Mokoena, Thabo M., Gupta, Rangan, Van Eyden, Reneé
Format: Article
Language:English
Subjects:
Bayesian analysis
Bayesian unit root test
Bias
C11
C22
Dickey-Fuller test
Exchange rates
F31
Foreign exchange rates
non-linear non-stationarity tests
Purchasing power parity
South Africa
Studies
Time series
Unit root
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Summary: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 test, non‐linear tests of non‐stationarity and Bayesian unit root tests, applied to 10 Southern African Development Community countries. The Bayesian tests were found to be biased in favour of a trend stationary model in all cases. It is argued that non‐linear 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 and 5% levels of significance.
ISSN:0038-2280
1813-6982
DOI:10.1111/j.1813-6982.2009.01220.x