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Abstract

We present an empirical analysis of a long run Purchasing Power Parity (PPP) for thirteen Asia-Pacific countries using cointegration techniques. Unlike standard unit root hypothesis tests, we specify the null as stationarity and the alternative as a unit root, as introduced by Kwiatkowski et al (1992). We find evidence in favour of a PPP relationship between the Solomon Islands and the US. Despite evidence of a cointegration relationship for a few other countries, the significance of the time trend variable violating a second necessary condition clearly rejects the absolute PPP claim, though there is some evidence of relative PPP. There is no evidence of a trans- Tasman PPP.

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