Testing the validity of PPP theory for African countries
Applied Economics Letters, vol.25, pp.1273-1277, 2018 (SSCI, Scopus)
- Publication Type: Article / Article
- Volume: 25
- Publication Date: 2018
- Doi Number: 10.1080/13504851.2017.1418066
- Journal Name: Applied Economics Letters
- Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
- Page Numbers: pp.1273-1277
- Ankara Yıldırım Beyazıt University Affiliated: Yes
Abstract
This study examines the purchasing power parity theory for 14 African countries by applying a recent composite time series method that incorporates the Fourier approximation. The structural breaks are modelled as a gradual smooth process by means of a Fourier component. The Fourier unit root test failed to find any evidence showing that real exchange rates for these 14 countries have mean-reverting tendencies. However, both cointegration and Fourier cointegration tests detect a stable long-term relation between the nominal exchange rate and relative price levels for 8 out of 14 countries; moreover, for five countries Fourier component in cointegration analysis is found to suit quite well.