Testing the validity of PPP theory for African countries


Yılancı V., Aslan M. , Ozguer Ö.

Applied Economics Letters, vol.25, pp.1273-1277, 2018 (Journal Indexed in SCI Expanded) identifier

  • Publication Type: Article / Article
  • Volume: 25
  • Publication Date: 2018
  • Doi Number: 10.1080/13504851.2017.1418066
  • Title of Journal : Applied Economics Letters
  • Page Numbers: pp.1273-1277

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.