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TEST OF PURCHASING POWER PARITY BASED ON COINTEGRATION TECHNIQUE The Asian Evidence

Farzana Naheed Khan, Eatzaz Ahmad

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Abstract

The paper tests purchasing power parity as a long-run equilibrium condition by investigating the short run behavior of exchange rate and relative prices for four Asian countries. The paper uses cointegration approach, looking at the data from 1976-2001 for three alternative price indices. The paper presents the empirical evidence that cointegrated relationship does not exist in the sampled data. The results of the study are not supportive of the purchasing power parity proposition in most of the cases.

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What this paper is about

The paper tests purchasing power parity as a long-run equilibrium condition by investigating the short run behavior of exchange rate and relative prices for four Asian countries. The paper uses cointegration approach, looking at the data from 1976-2001 for three alternative price indices. The paper presents the empirical evidence that cointegrated relationship does not exist in the sampled data. The results of the study are not supportive of the purchasing power parity proposition in most of the cases.

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OpenAlex reports 4 citations for this work. Citation counts describe recorded attention and do not establish research quality.

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Available abstract

The paper tests purchasing power parity as a long-run equilibrium condition by investigating the short run behavior of exchange rate and relative prices for four Asian countries. The paper uses cointegration approach, looking at the data from 1976-2001 for three alternative price indices. The paper presents the empirical evidence that cointegrated relationship does not exist in the sampled data. The results of the study are not supportive of the purchasing power parity proposition in most of the cases.

Key concepts: Purchasing power parity, Cointegration, Relative purchasing power parity, Economics, Econometrics, Exchange rate, Parity (physics), Empirical evidence

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