Testing the theory of PPP for emerging market economies that practice flexible exchange rate regimes

Mike F., KIZILKAYA O.

Applied Economics Letters, vol.26, no.17, pp.1411-1417, 2019 (SSCI) identifier

  • Publication Type: Article / Article
  • Volume: 26 Issue: 17
  • Publication Date: 2019
  • Doi Number: 10.1080/13504851.2018.1564111
  • Journal Name: Applied Economics Letters
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.1411-1417
  • Keywords: emerging market economies, Fourier cointegration analysis, Fourier quantile unit root test, Purchasing power parity
  • Hakkari University Affiliated: Yes

Abstract

This study aims to test the long-run validity of purchasing power parity by using Fourier quantile unit root and Fourier cointegration analyses for 12 emerging market economies that practice a flexible exchange rate regime. With the Fourier approach, structural breaks are modelled as a gradual and smooth process. Fourier quantile unit root test results show that real exchange rate series are stationary for Colombia, India, Philippines, Poland, South Africa, and Turkey. On the other hand, Fourier cointegration test results reveal that purchasing power parity is valid for Brazil, Colombia, India, Mexico, South Africa, Thailand, and Turkey.