Currency Crises and Purchasing Power Parity in the Asian Countries: Evidence Based on Second-Generation Panel Unit-Root Tests

Soon, Siew-Voon; Baharumshah, Ahmad Zubaidi; Shariff, Nurul Sima Md.; Ibrahim, Saifuzzaman

doi:10.22452/mjes.vol54no1.3

“…These results are also consistent with Ha (2018). Using panel data methods and considering structural breaks, Ha (2018) found that the PPP hypothesis is valid in nine Southeast Asian countries, namely Vietnam, Laos, Cambodia, Thailand, Myanmar, Malaysia, Singapore, Indonesia, and the Philippines between July 1997and August 2008. Soon et al (2017, using second-generation panel unit root tests, also found evidence for the PPP hypothesis in Southeast Asian countries.…”

Section: Panel Cointegrationmentioning

confidence: 99%

The ASEAN experience of the purchasing power parity theory

Murad

¹

,

Hossain

²

2018

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We used panel data analysis to evaluate the relative purchasing power parity (PPP) hypothesis of the ten ASEAN member countries between 1973 and 2015. We incorporated the cross-sectionally augmented panel unit root test as proposed by Pesaran (J Appl Econ 22:265-312, 2007). For panel cointegration analysis, we employed the four error-correction-based Westerlund (Oxf Bull Econ Stat 69:709-748, 2007) panel cointegration tests. The Westerlund (Oxf Bull Econ Stat 69:709-748, 2007) tests are general enough to permit a large degree of heterogeneity, both in the long-run cointegrating relationship and in the short-run dynamics, and dependence within as well as across the cross-sectional units. To check the robustness of the results, we further estimated the cointegration test excluding Indonesia and Brunei. The findings support our initial results. Further, all the results overwhelmingly support the relative PPP hypothesis. Consequently, the monetary authority would be able to implement a self-regulating monetary policy. It would also be able to control the exchange rates.

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Methodological approaches to currency risks at the macro level

Yatsenko

2024

Ekon. teor.

0

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A comprehensive investigation of the exchange rate as one of the critical indicators of macroeconomics has remained relevant since the introduction of the Jamaican monetary system. Moreover, the topic is even more important for small open economies and their financial sustainability. Logically, currency risks are of similar importance. However, their analysis, assessment, and management are complicated tasks. The reason is the dual nature of the exchange rate since it can generate autonomous shocks and act as an independent factor on other economic categories, such as inflation, interest rate, balance of payments, or export earnings. On the contrary, it can be a function of the same indicators but indirectly or with a time lag. Thus, an error or deviation from the direct object of study at any risk management stage - identification, analysis, evaluation, or management - can cause the actor's financial or economic losses. In particular, a study of the inflationary currency risk requires instruments of fundamental analysis for its assessment. In contrast, it is possible to use both fundamental and technical analysis tools for the exchange rate risk, depending on the objective. As a result, it is necessary to find a careful step-by-step consideration, or in other words, a way of organizing the study of currency risks. In this article, we have proposed a way based on the integration of the approach of Easterby-Smith et al. (2018) and the conceptual modeling of Guizzardi (2005). According to the proposed logic and structure, the correctness of choosing the appropriate way of quantifying risks depending on the preliminary theoretical analysis is demonstrated. The approach is suitable for the study of other economic phenomena or processes.

show abstract

Methodological approaches to currency risks at the macro level

Yatsenko

2024

Ekon. teor.

0

View full text Add to dashboard Cite

A comprehensive investigation of the exchange rate as one of the critical indicators of macroeconomics has remained relevant since the introduction of the Jamaican monetary system. Moreover, the topic is even more important for small open economies and their financial sustainability. Logically, currency risks are of similar importance. However, their analysis, assessment, and management are complicated tasks. The reason is the dual nature of the exchange rate since it can generate autonomous shocks and act as an independent factor on other economic categories, such as inflation, interest rate, balance of payments, or export earnings. On the contrary, it can be a function of the same indicators but indirectly or with a time lag. Thus, an error or deviation from the direct object of study at any risk management stage - identification, analysis, evaluation, or management - can cause the actor's financial or economic losses. In particular, a study of the inflationary currency risk requires instruments of fundamental analysis for its assessment. In contrast, it is possible to use both fundamental and technical analysis tools for the exchange rate risk, depending on the objective. As a result, it is necessary to find a careful step-by-step consideration, or in other words, a way of organizing the study of currency risks. In this article, we have proposed a way based on the integration of the approach of Easterby-Smith et al. (2018) and the conceptual modeling of Guizzardi (2005). According to the proposed logic and structure, the correctness of choosing the appropriate way of quantifying risks depending on the preliminary theoretical analysis is demonstrated. The approach is suitable for the study of other economic phenomena or processes.

show abstract

Currency Crises and Purchasing Power Parity in the Asian Countries: Evidence Based on Second-Generation Panel Unit-Root Tests

Cited by 4 publications

References 41 publications

The ASEAN experience of the purchasing power parity theory

The ASEAN experience of the purchasing power parity theory

Methodological approaches to currency risks at the macro level

Methodological approaches to currency risks at the macro level

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