Testing the validity of purchasing power parity in alternative markets: Evidence from the fourier quantile unit root test

Doğanlar M., Mike F., Kızılkaya O.

Borsa Istanbul Review, vol.21, no.4, pp.375-383, 2021 (SSCI) identifier

  • Publication Type: Article / Article
  • Volume: 21 Issue: 4
  • Publication Date: 2021
  • Doi Number: 10.1016/j.bir.2020.12.004
  • Journal Name: Borsa Istanbul Review
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, EconLit, Directory of Open Access Journals
  • Page Numbers: pp.375-383
  • Keywords: Fourier function, Purchasing power parity, Quantile unit root test
  • Hakkari University Affiliated: Yes

Abstract

This study analyzes the long-run validity of purchasing power parity (PPP) in three types of market economies—developed, emerging, and frontier markets—using the Fourier quantile unit root test. The analyses are conducted on 45 countries, including 10 developed, 20 developing, and 15 frontier market economies, using monthly observations from 1993:1 to 2018:8. Conventional, nonlinear, and Fourier-type unit root tests are also employed for this purpose. The Fourier quantile unit root test results provide more evidence than other tests on the validity of PPP, showing that it is valid in 8 developed, 11 emerging, and 7 frontier market economies.