Baharumshah, Ahmad Zubaidi and Aggarwal, Raj and Chan, Tze-Haw (2005): East Asian Real Exchange Rates and PPP: New Evidence from panel-data tests. Forthcoming in: Global Economic Review
Download (240Kb) | Preview
Abstract: This paper empirically tests purchasing power parity (PPP) using panel unit root designed for heterogeneous panels. Monthly data of six East Asian countries (South Korea, Thailand, Indonesia, Malaysia, Singapore and the Philippines) were used to test the long-run PPP relationship. This study documents the fact that unlike the pre-crises period, mean reversion in real Asian exchange rates is a feature of the post-crises period in all six countries considered in this study. It turns out that our finding based on an array of panel unit root tests appears to be invariant to the choice of the numeraire currency, namely the US and Japanese yen.
|Item Type:||MPRA Paper|
|Institution:||Universiti Putra Malaysia|
|Original Title:||East Asian Real Exchange Rates and PPP: New Evidence from panel-data tests|
|Keywords:||Purchasing power parity; Panel unit root tests; Asian financial crisis|
|Subjects:||F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics
F - International Economics > F3 - International Finance > F31 - Foreign Exchange
C - Mathematical and Quantitative Methods > C2 - Single Equation Models; Single Variables > C23 - Models with Panel Data; Longitudinal Data; Spatial Time Series
C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C12 - Hypothesis Testing: General
|Depositing User:||Tze-Haw Chan|
|Date Deposited:||06. Mar 2007|
|Last Modified:||13. Feb 2013 12:14|
Aggarwal, R. and Mougoue, M. (1996) Cointegration among Asian currencies: Evidence of the increasing influence of the Japanese yen, Japan and the World Economy, 8, pp. 291-308.
Azali, M., Habibullah, M.S. and Baharumshah, A.Z. (2001) Does PPP hold between Asian and the Japanese economies: Evidence using panel unit root and panel cointegration, Japan and the World Economy, 13, pp. 35-50.
Baharumshah, A.Z. and Ariff, M. (1997) Purchasing power parity in South East Asian countries: A cointegration approach, Asian Economic Journal, 11, pp. 141-154.
Bahmani-Oskooee, M. (1993) Purchasing power parity based on effective exchange rate and cointegration; 25 LDCs experience with its absolute formulation, World Development, 21, pp. 1023-31.
Bahmani-Oskooee, M. (1995) Real and nominal effective exchange rates for 22 LDCs, Applied Economics, 27, pp. 591-604.
Bhargava, A. (1986) On the theory of testing for unit roots in observed time series, Review of Economic Studies, 53, pp. 369-384.
Breitung, J., and Candelon, B. (2005) Purchasing power parity during currency crises: A panel unit root test under structural breaks, Review of World Economic, 141(1), pp. 124-40.
Breitung, J. (2000) The local power of some unit root tests for panel data, in: B. Baltagi (ed) Advances in Econometrics: Nonstationary Panels, Cointegration in Panels, and Dynamics Panels, Vol. 15, (JAI: Amsterdam) pp. 161-177.
Caner, M. and Kilian, L. (2001) Size distortions and tests of the null hypotheses of stationary: Evidence and implication for applied work, Journal of International Money and Finance 20(5), pp. 639-657.
Cheung, Y-W. and Lai, K.S. (2000) On the purchasing power parity puzzle, Journal of International Economics, 52, pp. 32-330.
Chinn, M.D. (2000) Before the fall: Were East Asian currencies overvalued? Emerging Market Review, 1, pp. 101-126.
Chiu, R.-L. (2002) Testing purchasing parity in panel data, International Review of Economics and Finance, 11, pp. 349-362.
Dickey, D.A. and Fuller, W.A. (1979) Distribution of the estimates for autoregressive time series with a unit root, Journal of the American Statistical Association, 74(2), pp. 427-31.
Elliot, G., Rothenberg, T.J. and Stock, J.H. (1996) Efficient tests for an autoregressive unit root, Econometrica, 50, pp. 987-1007. Engle, C. (1998) Long run PPP may not hold after all, Discussion Paper, University of Washington.
Frankel, J.A. and Rose, A.K. (1996) A panel project on purchasing power parity: Mean reversion within and between countries, Journal of International Economics, 40, pp. 209-224.
Fountas, S. and Wu, J. (1999) Testing for real interest rate convergence in European countries, Scottish Journal of Political Economy, 46, pp. 158-174.
Frenkel, J.A. 1980. Purchasing power parity: Doctrinal aspects and empirical from the 1920s, Journal of International Economics, 8(2), pp. 169-191.
Froot, K.A. and Rogoff, K. 1995. Perspectives on PPP and long-run real exchange rates, in: Grossman, G., Rogoff, K. (Eds) Handbook of International Economics (North-Holland, Amsterdam) 3, pp. 1647-1688.
Harris, R.D.F. and Tzavalis, E. (1999) Inference for unit roots in dynamic panels where the time dimension is fixed, Journal of Econometrics, 91, pp. 201-226.
Hegwood, N. and Papell, D. (1998) Quasi purchasing power parity, International Journal of Finance and Economic, 3, pp. 279-289. Hendry, Ó.T. and Olekalns, N. (2002) Does the Australian dollar real exchange rate display mean reversion, Journal of International Money and Finance, 21, pp. 651-666.
Holmes, M.J. (2002) Does long-run real interest rate parity hold among EU countries? Some new panel data evidence, Quarterly Review of Economic and Finance, 42, pp. 733-746.
Horvath, M.T.K. and Watson, M.W. (1995) Testing for cointegration when some of the cointegrating vectors are prespecified, Econometric Theory, 11, pp. 984-1014.
Im, K. S., Pesaran, M. H., and Y. Shin (2003) Testing for unit roots in heterogeneous panels, Journal of Econometrics, pp. 115, 53–74.
Levin, A. and Lin, C. F. (1993) Unit root test in panel data: asymptotic and finite sample properties. Unpublished Manuscript, University of California at San Diego.
Levin, A., Lin, C. F., and C. Chu (2002) Unit root tests in panel data: asymptotic and finite-sample properties, Journal of Econometrics, 108, pp. 1–24.
Lim, G.C. (2002) Modelling the interaction of fundamental and portfolio exchange rate behaviour: An application to Australia and ASEAN3, Australian Economic Papers, 41(4), pp. 557-576.
Johansen, Sören. (1988) The statistical analysis of cointegration vectors, Journal of Economic Dynamics and Control, 12 (2/3), pp. 231–54.
Kwiatkowski, D, Phillips, P.C.B., Schmidt, P. and Shin, Y. (1992) Testing the null hypothesis of stationary against the alternative of a unit root, Journal of Econometrics 54, pp. 159-178.
Lopez, C., Murray C.J. and Papell, D.H. (2004) State of the art unit root tests and purchasing power parity, Economics Working Papers Series 2004-04, University of Cincinnati, Department of Economics.
Maddala, G.S. and Wu, S. (1999) A comparative study of unit root tests with panel data and a new simple test, Oxford Bulletin of Economics and Statistics, 61, pp. 631-652.
McNown, R. and Wallace, M. (1989) National price level, purchasing power parity, and cointegration: A test of four high inflation economies, Journal of International Money and Finance, 8, pp. 533-45.
Murray, C.J. and Papell, D.H. (2002) The purchasing power persistence paradigm, Journal of International Economics, 56, pp. 1-19.
Ng, S. and Perron, P. (2001) Lag length selection and the construction of unit root tests with good size and power, Econometrica, 69(6), pp. 1519-1554.
O’Connell, P. (1998) The overvaluation of purchasing power parity, Journal of International Economics, 44, pp. 1-19.
Oh, K.Y. (1996) Purchasing power parity and unit root tests using panel data, Journal of International Money and Finance, 15(3), pp. 405–418.
Papell, D.H. (2002) The great appreciation, the great depreciation, and the purchasing power parity hypothesis, Journal of International Economics, 57, pp. 51–82.
Papell, D.H. and Theodoridis, H. (1998) Increasing evidence of purchasing power parity over the current float, Journal of International Money and Finance, 17(1), pp. 41-50.
Papell, D.H. (1997) Searching for stationarity: Purchasing power parity under the current float, Journal of International Economics, 43, pp. 313-332.
Perron, P. (1989) The great crash, the oils price shock, and the unit root hypothesis, Econometrica, 57, pp. 1361-401.
Phillips, P.C.B. and Perron, P. (1988) Testing for a unit root in time series regression, Biometrika, 75, pp. 335–346.
Rogoff, K. (1996) The purchasing power parity puzzle, Journal of Economic Literature, 34, pp. 647-668.
Serletis, A. and Zimonopoulos, G. (1997) Breaking trend functions in real exchange rates: Evidence from seventeen OECD countries, Journal of Macroeconomics, 19(4), pp. 781-802.
Shintani, M. (2002) A nonparametric measure of convergence toward purchasing power parity, UCLA Working Paper, No. 02-W19.
Taylor, M. P. (2003) Purchasing power parity, Review of International Economics, 11(3), pp. 436-452.
Wu, J-L., Chen S-L. and Lee, H-Y. (2001) Are current account deficits sustainable? Evidence from panel cointegration, Economic Letters, 72, pp. 219-224.
Wu, Y. (1996) Are real exchange rates nonstationary? Evidence form a panel-data test, Journal of Money, Credit and Banking, 28, 54-63.
Zivot, E. and Andrews, D. (1992) Further evidence on the great crash, the oil price shock, and the unit root hypothesis, Journal of Business and Economic Statistics, 10, pp. 251-270.