Cointegration Analysis of Purchasing Power Parity in a Small Country Context

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.


Issue Date:
Sep 01 1996
Publication Type:
Working or Discussion Paper
Language:
English
Total Pages:
32
JEL Codes:
C32; F41
Series Statement:
Working Paper 12/96




 Record created 2018-02-06, last modified 2018-02-07

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