چکیده:
urchasing power parity hypothesis is viewed as one of the central doctrines in international economics. The hypothesis states anequilibrium condition equating the nominal exchange rate between two national currencies with the relative price of an identical basket oftraded goods in each country. Empirical analysis has produced mixed results in testing for the PPP. This paper analyzes the empirical validity of PPP hypothesis in OIC countries. Hence, it examines the stationarityof real exchange rate by ADF unit root test and various panel unit root tests. Using univariate ADF unit-root test on single time series and also the conventional panel unit root tests namely, Im, Pesaran, and Shin(2003), Levin, Lin & Chu (2002), and Hadri (2000), it was found that the real exchange rate of all OIC countries and also panel series of real exchange rate have unit root. But when recently developed panel LMunit root test that allow for heterogeneous level shifts, are applied, the null unit roots isn’t rejected in real exchange rates series. Our findings are generally supportive of the PPP hypothesis with the crises leading toshifts in long-run trends.
خلاصه ماشینی:
Purchasing Power Parity Hypothesis in OIC Countries: Evidence from Panel Unit Root Tests with Heterogeneous Structural Breaks Zahra (Mila) Elm ∗ Omid Ranjba ∗∗ Abstract urchasing power parity hypothesis is viewed as one of the central doctrines in international economics.
But when recently developed panel LMunit root test that allow for heterogeneous level shifts, are applied, the null unit roots isn’t rejected in real exchange rates series.
Whereas, ADF unit root tests have relatively low power to reject the null hypothesis of unit roots when the span of data is short or structural change have occurred in Data Generating Process, hence the earlier studies could not find crucial results in favor of the PPP.
2- Data and Methodology 2-1- Data description In this paper, we test the PPP hypothesis in 29 OIC countries namely, Albania, Algeria, Benin, Burkina Faso, Chad, Côte d'Ivoire, Egypt, Gabon, Guinea Bissau, Guyana, Indonesia, Iran, Jordan, Kazakhstan, Kuwait, Kyrgyz, Malaysia, Mali, Morocco, Mozambique, Niger, Nigeria, Oman, Pakistan, Saudi Arabia, Senegal, and Tunisia, Turkey and Uganda.
The results were found using ADF and conventional panel unit root test is according to results of other studies that have examined the PPP hypothesis in development countries.
But when the panel LM unit roots tests with one and two structural breaks were applied, we couldn’t reject the null hypothesis of unit root tests for all real exchange rate series and found generally supportive of the PPP hypothesis for OIC countries.