PPP in the 34 OECD countries: evidence from quantile-based unit root tests with both smooth and sharp breaks

Bahmani‐Oskooee, Mohsen; Wu, Tsung-Pao

doi:10.1080/00036846.2017.1403562

Cited by 10 publications

(5 citation statements)

References 28 publications

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“…In this paper, we have used a number of tests to study long-run PPP in 19 countries. Our empirical evidence corroborates the findings of Bahmani-Oskooee and Wu (2018), who used quantile estimator and monthly data for the period 1994:01-2016:03 to study OECD countries they found that PPP is supported in Austria, Germany, Italy, Mexico, Poland, Switzerland and Turkey. Their study sample, however, did not include the other 12 countries in our study.…”

Section: Resultssupporting

confidence: 90%

Exchange rate and long-run price relationship in 19 selected European and LDCs

Arize

Kalu

Okoyeuzu

et al. 2019

JFEP

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Purpose This study aims to make a comparative study of the applicability of the purchasing power parity (PPP) in selected less developing countries (LDCs) on one hand and European countries on the other hand. Design/methodology/approach The research design is empirical and ex post facto. This study uses an assortment of co-integration tests and error correction representation. The chosen approach allows for the consideration of long-run elasticities and the dynamics of the short-run adjustment of exchange rates to changes in domestic and foreign prices. Monthly data are used for the period 1980:1 through 2015:12 (i.e. 432 observations). Findings Results from long-run co-integration analysis, short-run error correction models and persistence profile analysis overwhelmingly confirm the validity of PPP in these two sets of countries regardless the disparity in their relative exchange rate and price characteristics. Research limitations/implications Curiously, several of these empirical studies and still many more, have focused their attention on the experiences of industrialized countries, with a few investigations devoted to LDCs. The evidence is even scarcer in Africa. Clearly, the acceptance of any hypothesis as a credible explanation of economic reality hinges on the robustness of the hypothesis across countries with different economic and institutional frameworks. Practical implications Knowledge of the extent to which exchange rate and relative prices can be linked in the long run is important for the design and management of inflation and the implementation of monetary policy. For instance, policy actions aimed at stabilizing the domestic economy can obtain results that are, at best, uncertain in the absence of correct characterization of the PPP dynamics. Moreover, structural and macroeconomic adjustment programs implemented in these countries to achieve economic growth and external competitiveness could be unsuccessful if flawed estimates of PPP exchange rates are retained. Originality/value Several empirical studies have been done to prove the validity or otherwise of the PPP. Unlike prior authors, this study makes a comparative study of the applicability of the PPP in selected LDC on one hand and European countries.

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Section: Resultssupporting

confidence: 90%

Exchange rate and long-run price relationship in 19 selected European and LDCs

Arize

Kalu

Okoyeuzu

et al. 2019

JFEP

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show abstract

“…In other words, these countries would alter their exchange rate policies and affect their competitiveness in foreign trade. Conclusively, the findings are consistent with the results of similar studies on OECD countries such as Cuestas and Regis (2013), Jiang et al (2015) and Bahmani-Oskooee and Wu (2018). The ongoing debate on PPP indicates that the relevant area of research will continue to evolve and remain important.…”

Section: Discussionsupporting

confidence: 87%

OECD Ülkelerinde Satın Alma Gücü Paritesinin İncelenmesi: Doğrusal Olmayan Yapısal Kırılmalı Birim Kök Testinden Yeni Kanıtlar

UĞUR

Alper²

2023

Sosyoekonomi

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This study aims to investigate the purchasing power parity (PPP) hypothesis for 38 OECD member countries over the period 1994:M1-2021:M9 by performing Hepsag’s (2021) unit root test. It fills the gap in the literature since it is one of the first studies conducted performing a unit root test that considers structural change and nonlinearity for all OECD countries. The study, in which conventional unit root tests such as the ADF, KPSS, and the Fourier KPSS, which allow merely structural change, yield conflicting results regarding the validity of the PPP hypothesis, determines that the PPP hypothesis is valid for countries with stationary real effective exchange rates at the level such as Finland, France, Germany, Greece, Hungary, Iceland, Italy, Japan, Korea, Lithuania, Luxembourg, Mexico, Norway, Slovakia, Slovenia, Spain, Switzerland, Turkey, and the USA according to Hepsag’s (2021) unit root test results.

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“…In a similar vein, the quantile‐based unit root test introduced by Koenker and Xiao (2004) recently accumulates interest as a useful tool to re‐examine the second PPP puzzle. By further accounting for structural shifts and smooth breaks in this type of test, Bahmani‐Oskooee and Wu (2018) found supporting evidence for nonlinear PPP in OECD countries. The limiting distributions, power, and performance of similar tests in finite samples are discussed by Yang and Zhao (2020).…”

Section: Exchange Rates and Prices Over Timementioning

confidence: 93%

The purchasing power parity and exchange‐rate economics half a century on

2022

Journal of Economic Surveys

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The value of a country's currency is often considered as the most important price in the economy. Exchange‐rate changes can significantly affect the profitability of exporters, the prices paid by consumers, as well as complicating the comparison of the economies of different countries. In this article, we illustrate the workings of the purchasing power parity (PPP) and demonstrate its practical use with cross‐country data covering the 50 years since the collapse of the Bretton Woods monetary system. We find that despite the prolonged gyrations of currency values and the multitude of trade barriers, the forces of arbitrage and resource re‐allocation are sufficient to overcome many of these distortions in the longer term. We also provide a broad survey of other prominent themes, both extant and emerging, in international economics that highlight the importance of the relationship between exchange rates and prices.

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PPP in the 34 OECD countries: evidence from quantile-based unit root tests with both smooth and sharp breaks

Cited by 10 publications

References 28 publications

Exchange rate and long-run price relationship in 19 selected European and LDCs

Exchange rate and long-run price relationship in 19 selected European and LDCs

OECD Ülkelerinde Satın Alma Gücü Paritesinin İncelenmesi: Doğrusal Olmayan Yapısal Kırılmalı Birim Kök Testinden Yeni Kanıtlar

The purchasing power parity and exchange‐rate economics half a century on

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