Purchasing Power Parity In Mena Revisited: Empirical Evidence in the Presence of Endogenously Determined Break Points

Abstract

ABSTRACT

Are the Mediterranean Countries With Tourism Price Indices in the Purchasing Power Parity Zone?

“…Thorough investigation of the PPP dictum for the Middle East and North African countries is reported by Bahmani-Oskooee and Kandil (2007), and Kula et al (2011). In Bahmani-Oskooee and Kandil (2007), the real effective exchange rate series for 14 the Middle East and North African economies are evaluated with the KPSS test and the parity conditions are accepted in around half of the cases observed.…”

“…The authors' estimations also show that in many of these countries nominal depreciation of exchange rates spills into real depreciation in the short-run as well as in the long-run. On the other hand, Kula et al (2011) apply the Lagrange Multiplier unit root test for official and black market exchange rates of 13 the Middle East and North African countries. After incorporating structural breaks in the data series from 1970 to 1998, the presence of mean reversion is established in 4 official exchange rates and in 5 black market exchange rates.…”

Testing the PPP Using Unit Root Tests with Structural Breaks: Evidence from Politically Unstable Arab Countries

“…Voiena (2013); Biqing and Xiaowe (2012) and Rashid and Saedan (2013) on the other hand examined the impact of the 2008 financial crisis on the PPP. In addition to other studies that only conducted structural break tests without a pre specified interest on the driver of the break (For example, Kula et al (2011) reported evidence in favor of the PPP in the majority of countries as the deviations from the PPP were found finite.…”

“…2 The degree to which mean reversion takes place is often measured by the half-life, a measure of the persistence of shocks, that indicates how long it takes for the impact of a unit shock to dissipate by half Kula, Aslan and Feridun (2011).…”

“…They reported weak PPP for MENA countries. Kula et al (2011) used a sample of 13 MENA countries, including Syria, Egypt and Tunisia from 1970 to 1998 to examine the validity of the PPP.…”