scholarly journals Nonlinear Cointegration and Asymmetric Adjustment in Purchasing Power Parity of the USA, Germany, and Pakistan

Complexity ◽  
2021 ◽  
Vol 2021 ◽  
pp. 1-7
Author(s):  
Kashif Ali ◽  
Hafsa Hina ◽  
Muhammad Ijaz ◽  
Mahmoud El-Morshedy
Keyword(s):  
Exchange Rate ◽  
Purchasing Power Parity ◽  
Purchasing Power ◽  
Power Parity ◽  
Asymmetric Adjustment ◽  
Long Run ◽  
Nominal Exchange Rates ◽  
Trading Partners ◽  
The Usa ◽  
The Exchange Rate

The current study explores nonlinear cointegration as well as asymmetric adjustment to investigate the long-run purchasing power parity in three major trading partners of Pakistan. The ESTAR and LSTAR models were used to investigate the behavior of the nominal exchange rates. The findings declared that series follows the nonlinear exchange rate. The asymmetric behavior of the exchange rate allows the threshold cointegration model to be implemented. In the case of Pakistan-China, the result suggests that long-run PPP holds. As a result, trading will be more profitable if the exchange rate is varied in relation to major trading partners rather than just the US dollar.

Purchasing power parity as a long-term memory process

2015 ◽  
Vol 10 (4) ◽  
pp. 711-725 ◽  
Author(s):  
Mohamed Bilel Triki ◽  
Samir Maktouf
Keyword(s):  
Exchange Rate ◽  
Purchasing Power Parity ◽  
Empirical Literature ◽  
Long Term Memory ◽  
Purchasing Power ◽  
Power Parity ◽  
Fractional Cointegration ◽  
Content Type ◽  
Long Run ◽  
The Usa

Purpose – The purpose of this paper is to focus on whether the deviations from the cointegrating relationship possess long memory and the fractional cointegration analyses may capture a wider range of mean-reversion behaviour than standard cointegration analyses. Design/methodology/approach – This paper uses a fractional cointegration technique to test the purchasing power parity (PPP). Findings – The authors found that PPP held, but very weakly, in the long run between the Argentine, Brazil, Chile, Colombia, Indonesia, Korea, Mexico, Thailand and Venezuela and US exchange rate during our floating exchange rate period but that the deviations from it did not follow a stationary process. Nevertheless, it is also found that the deviations from PPP exists and can be characterized by a fractionally integrated process in nine out of 13 countries studied. Originality/value – The findings are consistent with the consensus of the empirical literature, reviewed earlier in this paper, on PPP between Argentine, Brazil, Chile, Colombia, Indonesia, Korea, Mexico, Thailand and Venezuela and the USA.

scholarly journals Identifying The Purchasing Power Parity of Indonesia Rupiah (IDR) based on BIG MAC Index

2016 ◽  
Vol 17 (2) ◽  
pp. 210
Author(s):  
Tongam Sihol Nababan
Keyword(s):  
Exchange Rate ◽  
Purchasing Power Parity ◽  
Real Income ◽  
Purchasing Power ◽  
Power Parity ◽  
The Real ◽  
The People ◽  
The Usa ◽  
The Exchange Rate ◽  
Asean Countries

The aim of this study is to identify : (1) profile of exchange rate and purchasing power parity of IDR against US $ based on Big Mac Index compared to the exchange rate of other countries, and (2) the position of the Big Mac Affordability of  Indonesia compared to other ASEAN countries. The results showed that based on Big Mac index during the period April 1998 up to January 2015, IDR exchange rate tends to be undervalued against the USA dollar. The cause of the currency tends to be in a position of undervalued due to the components of non-tradable have not been included in Big Mac index. The index of Big Mac Affordability indicates that there is a great disparity of income between Singapore and five other ASEAN countries. The purchasing power of the real income of the people in Singapore is nearly five times the real income of the people in Indonesia.

Study on the HMM of Nonlinear Nominal Exchange Rates

2011 ◽  
Vol 268-270 ◽  
pp. 1823-1827
Author(s):  
Shuo Zhang ◽  
Xiao Feng Hui
Keyword(s):  
Exchange Rate ◽  
Purchasing Power Parity ◽  
Nominal Exchange Rate ◽  
Statistical Characteristics ◽  
Rate Theory ◽  
Purchasing Power ◽  
Rate Model ◽  
Power Parity ◽  
Nominal Exchange Rates ◽  
The Exchange Rate

The exchange rate model for the study of the exchange rate theory has very important significance. After analyzing the successful nonlinear model of real exchange rate based on the purchasing power parity (PPP) theory, the nonlinear problem of nominal exchange rate is studied in this paper. Through a research on a period of nominal exchange rate with nonlinear characteristics, a nonlinear statistical model of nominal exchange rate based on the hidden Markov model (HMM) is proposed, and the parameters of the model are estimated. Hypothesis testing shows that the model can accurately describe the statistical characteristics of the nominal exchange rate time series. The parameters showed that the nominal exchange rate model proposed in this paper, to some extent, supports that deviations from purchasing power parity (PPP) are nonlinear mean reversions.

scholarly journals Long-Run and Short-Run Dynamics of the Exchange Rate in Pakistan: Evidence From Unrestricted Purchasing Power Parity Theory

2008 ◽  
Vol 13 (1) ◽  
Author(s):  
Muhammad Arshad Khan ◽  
Abdul Qayyum Abdul Qayyum
Keyword(s):  
Exchange Rate ◽  
Purchasing Power Parity ◽  
Nominal Exchange Rate ◽  
Purchasing Power ◽  
Power Parity ◽  
Speed Of Adjustment ◽  
Long Run ◽  
Short Run ◽  
The Exchange Rate ◽  
Long Run Equilibrium

The main focus of this paper is to measure the speed of adjustment of the exchange rate by means of the persistent profile approach developed by Pesaran and Shin (1996) to examine the symmetry and proportionality assumptions of the purchasing power parity (PPP) theory of exchange rates for the Pak-rupee vis-à-vis the US-dollar exchange rate over the period 1982Q2-2005Q4. Using cointegration and vector error-correction modeling approaches, we find considerable support for the validity of weak-form PPP in Pakistan. Furthermore, the symmetry and proportionality assumptions of PPP are not verified. In the short-run, the exchange rate and foreign prices play a significant role in the convergence process to achieve long-run equilibrium. However, the speed of adjustment is very slow and the persistence profiles suggest that almost 4-5 years are required to eliminate deviations and bring the nominal exchange rate in line with the long-run equilibrium path.

scholarly journals Long-run purchasing power parity with asymmetric adjustment: further evidence from African countries

2011 ◽  
Vol 43 (2) ◽  
pp. 231-242 ◽  
Author(s):  
Tsangyao Chang ◽  
Yang-Cheng Lu ◽  
D. P. Tang ◽  
Wen-Chi Liu
Keyword(s):  
Purchasing Power Parity ◽  
Purchasing Power ◽  
Power Parity ◽  
Asymmetric Adjustment ◽  
African Countries ◽  
Long Run

scholarly journals Testing the Harrod Balassa Sameulson Hypothesis: The Case of Pakistan.

2011 ◽  
Vol 50 (4II) ◽  
pp. 379-399 ◽  
Author(s):  
Sunila Jabeen ◽  
Waseem Shahid Malik ◽  
Azad Haider
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Open Economy ◽  
Purchasing Power Parity ◽  
Control Variable ◽  
Policy Implications ◽  
Purchasing Power ◽  
Power Parity ◽  
Long Run ◽  
Tradable Sector

For a small open economy of Pakistan, exchange rate is determined through the two alternative theories; the nominal theory of exchange rate named by Purchasing Power Parity (PPP) and the real theory known as Harrod Balassa Sameulson (HBS). According to the requirements of theories, two kinds of real exchange rate have been employed for the yearly data of 1972-2008. As, both of the theories are disputed at the ground of their long run relationship with real exchange rate, therefore, the VAR based Johenson Co-integration approach has been utilised to see the long run relationships. PPP has shown less satisfactory results either in its form of absolute version or relative version. Because, real exchange rate in Pakistan is a non-stationary process by Augmented Dickey Fuller unit-root test, predicting some pushing force behind the non-tradable sector. While favouring the PPP in tradable sector, the ADF and KPSS are indicating the presence of the HBS in Pakistan. On the other hand, the analysis of the HBS through co-integration is showing that relative productivity difference has an opposite relationship with relative non-tradable sector prices and with RER. However, the relationship between relative non-tradable sector prices and RER is much stronger and according to the theory. So, there have been incorporated some demand side and external factors to reduce the mis-specification of the simple HBS model. Therefore, in the extended HBS model, productivity difference, government consumption expenditure, terms of trade and world oil prices are appreciating the RER and money supply (a control variable) is pursuing depreciation in RER. So, these results yield some policy implications for Pakistan which can be useful for developing countries as well. JEL classification: E0, E31, E44 Keywords: Harrod-Balassa-Samuelson, Exchange Rate, Purchasing Power Parity, Pakistan

scholarly journals Market Efficiency and Long Run Purchasing Power Parity Disequilibria of the Mexican Peso Under Changing Exchange Rate Regimes

2004 ◽  
Author(s):  
Alejandra Cabello ◽  
Edgar Iván Ortiz ◽  
Robert I. Johnson
Keyword(s):  
Exchange Rate ◽  
Market Efficiency ◽  
Purchasing Power Parity ◽  
Inflation Targeting ◽  
Structural Changes ◽  
Exchange Rate Regimes ◽  
Purchasing Power ◽  
Power Parity ◽  
Macroeconomic Policies ◽  
Long Run

This paper tests if the efficient market version of Purchasing Power Parity (EMPPP) holds for the Mexican case for the 1970-2002 period in an environment of changing exchange rate regimes. Two regression analyses which extend PPP to a dynamic intertemporal model, based on market efficiency, are used, and in addition two unit root tests are applied. In general, the obtained empirical evidence does not support the EMPPP. Results suggest an inefficient market resulting from weak exchange rate policies and weak adoptions of several exchange rate regimes without proper inflation targeting and the application of strong and disciplined macroeconomic policies and structural changes.  

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