scholarly journals Testing For Purchasing Power Parity In A Panel Of Middle-Eastern Countries

2011 ◽  
Vol 4 (12) ◽  
Author(s):  
Hala El-Ramly
Keyword(s):  
Middle East ◽  
Exchange Rates ◽  
Purchasing Power Parity ◽  
Unit Root ◽  
Middle Eastern ◽  
Real Exchange Rates ◽  
Purchasing Power ◽  
Power Parity ◽  
The Real ◽  
The Mean

The attention given to testing for purchasing power parity (PPP) using middle-eastern data has so far been very limited. This paper tests for PPP in a panel of twelve countries from the Middle East. Four different unit root procedures are used to test for the mean reversion property in the real exchange rates of these countries. The evidence in support of PPP in the tested panel is generally found to be weak.

scholarly journals Analisis Purchasing Power Parity Indonesia Menggunakan Pendekatan Error Correction Model

2012 ◽  
Vol 2 (2) ◽  
Author(s):  
Aula Ahmad Hafidh
Keyword(s):  
Exchange Rates ◽  
Error Correction ◽  
Purchasing Power Parity ◽  
Real Exchange Rates ◽  
Error Correction Model ◽  
Power Relationship ◽  
Purchasing Power ◽  
Power Parity ◽  
Correction Model ◽  
The Mean

This papers tests for Purchasing Power Parity (PPP) between Indonesia and its main trading partner United States (US) using Error Correction Model (ECM). We examine the mean-reverting properties of real exchange rates. The tests shows that PPP is hold underlying the theory, purchasing power relationship is shown to exist. The model is, furthermore, shown to have significant forecasting power

Purchasing Power Parity and the Law of One Price: Evidence from Commodity Prices in Asian Countries

2015 ◽  
Vol 15 (2) ◽  
pp. 231-240 ◽  
Author(s):  
Mohsen Bahmani-Oskooee ◽  
ABM Nasir
Keyword(s):  
Exchange Rates ◽  
Purchasing Power Parity ◽  
Real Exchange Rates ◽  
Strong Support ◽  
Commodity Prices ◽  
Law Of One Price ◽  
Purchasing Power ◽  
Power Parity ◽  
Industrial Countries ◽  
The Law

Almost all previous studies that have tested the law of one price or Purchasing Power Parity theory (PPP) have used either real effective exchange rates or bilateral real exchange rates which are constructed using CPI or PPI data. Most of these studies have failed to support the PPP mostly due to aggregation bias. A few recent studies, have, therefore used commodity prices in different countries and have provided strong support for the theory. These studies have mostly used data from industrial countries. In this paper, we use individual prices of 52 retail items from 15 cities in Asia and test for stationarity of the real exchange rate and speed of adjustment. We provide support for PPP in 63% of the cases. We also find that using individual prices lead to faster convergence of real rates toward their PPP values.

Purchasing Power Parity and Real Exchange Rates

2019 ◽  
Author(s):  
Menzie D. Chinn
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Real Exchange Rate ◽  
Purchasing Power Parity ◽  
Time Horizon ◽  
Nominal Exchange Rate ◽  
Purchasing Power ◽  
Power Parity ◽  
The Real ◽  
Short Run

The idea that prices and exchange rates adjust so as to equalize the common-currency price of identical bundles of goods—purchasing power parity (PPP)—is a topic of central importance in international finance. If PPP holds continuously, then nominal exchange rate changes do not influence trade flows. If PPP does not hold in the short run, but does in the long run, then monetary factors can affect the real exchange rate only temporarily. Substantial evidence has accumulated—with the advent of new statistical tests, alternative data sets, and longer spans of data—that purchasing power parity does not typically hold in the short run. One reason why PPP doesn’t hold in the short run might be due to sticky prices, in combination with other factors, such as trade barriers. The evidence is mixed for the longer run. Variations in the real exchange rate in the longer run can also be driven by shocks to demand, arising from changes in government spending, the terms of trade, as well as wealth and debt stocks. At time horizon of decades, trend movements in the real exchange rate—that is, systematically trending deviations in PPP—could be due to the presence of nontraded goods, combined with real factors such as differentials in productivity growth. The well-known positive association between the price level and income levels—also known as the “Penn Effect”—is consistent with this channel. Whether PPP holds then depends on the time period, the time horizon, and the currencies examined.

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