Validity of purchasing power parity for selected Latin American countries: Linear and non-linear unit root tests

Vasconcelos, Claudio Roberto Fóffano; Júnior, Luiz Antônio Lima

doi:10.1016/j.econ.2015.11.001

Cited by 13 publications

(5 citation statements)

References 33 publications

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“…Similarly, Vasconcelos and Júnior (2016) examined empirically the validity of PPP in the context of unit root tests based on linear and nonlinear models of the real effective exchange rate of Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela. The results show that the series with linear characteristics are Argentina, Brazil, Chile, Colombia and Peru and those with non-linear characteristics are Mexico and Venezuela.…”

Section: Resultsmentioning

confidence: 99%

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: Resultsmentioning

confidence: 99%

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

Arize

Kalu

Okoyeuzu

et al. 2019

JFEP

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“…They have shown that PPP is valid in 17 OECD countries. Vasconcelos and Júnior (2016) tested the validity of purchasing power parity in Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela with linear and nonlinear unit root tests. At the end of the analysis, it has been determined that purchasing power parity is valid for Mexico, Chile and Peru.…”

Section: Literature Reviewmentioning

confidence: 99%

THE VALIDITY OF THE PURCHASING POWER PARITY HYPOTHESIS IN OECD COUNTRIES: EVIDENCE FROM THE FOURIER TEST / OECD Ülkelerinde Satın Alma Gücü Paritesi Hipotezinin Geçerliliği: Fourier Testinden Kanıtlar

Imre

2021

Uluslararası Ekonomi İşletme Ve Politika Dergisi

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According to purchasing power parity (PPP), the nominal exchange rate between the two currencies should be equal to the ratio of the total price levels between the two countries. In other words, it is a simple theory that argues that countries' currencies will have the same purchasing value. In this study, 25 OECD countries is aimed to test the validity of the purchasing power parity hypothesis. The validity of the hypothesis was tested with the monthly data of 1980-Q1 2018-Q12 and Fourier KPSS unit root tests. As a result of the analysis, the validity of the purchasing power parity hypothesis was provided in Brazil,

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“…Finally, the aim of the study of Vasconcelos and Júnior (2016) is to empirically examine the validity of PPP in the context of unit root tests based on linear and non‐linear models of the real effective exchange rate of Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela for the period 1994:1–2014:4. The results show that Argentina is included within those countries which share the series with linear characteristics.…”

Section: Literature Reviewmentioning

confidence: 99%

An empirical examination of purchasing power parity: Argentina 1810–2016

Jacobo

Sosvilla‐Rivero

2020

Int. J Fin Econ

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This paper examines the purchasing power parity behaviour for Argentina during the 1810–2016 period. To that end, we use cointegration analysis and error correction models allowing for structural breaks. We find a long‐run relationship between the AR$/USD exchange rate and the price differential between Argentina and the USA. In particular, we offer empirical evidence in favour of a cointegrating equation with two structural breaks. We also find evidence that the data could identify an appropriate error correction model for the short‐run dynamics, hence providing further support for the cointegrating equation as a long‐run relationship.

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Validity of purchasing power parity for selected Latin American countries: Linear and non-linear unit root tests

Cited by 13 publications

References 33 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

THE VALIDITY OF THE PURCHASING POWER PARITY HYPOTHESIS IN OECD COUNTRIES: EVIDENCE FROM THE FOURIER TEST / OECD Ülkelerinde Satın Alma Gücü Paritesi Hipotezinin Geçerliliği: Fourier Testinden Kanıtlar

An empirical examination of purchasing power parity: Argentina 1810–2016

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