Journal Article

Purchasing Power Parity and Nonlinear Real Exchange Rate Adjustment: Evidence From High-Growth Countries

陳鳳琴(Feng-Chin Chen)

2017

Overview

This study applies nonlinear KSS unit root test (Kapetanios, Shinb, and Snell, 2003) and an Asymmetric Exponential Smooth Transition Auto-Regressive (AESTAR) unit root test, proposed by Sollis (2009), to investigate the validity of long-run Purchasing Power Parity (PPP) for six high-growth countries. The empirical results indicate that PPP holds for five of the six high-growth countries studied, namely Brazil, China, Indonesia, Mexico and South Korea, using the KSS test. Furthermore, using Sollis (2009) AESTAR unit root test reveals that real appreciations in the value of the Indonesia Rupiah-U.S. and Korea Won-U.S. dollar exchange rate are slower to revert do the mean (nonlinearly) than depreciations of the same proportionate amount, and the adjustment toward PPP is found to be nonlinear and asymmetric. On the other hand, Brazil/USD, China/USD and Mexico/USD adjustments are found to be nonlinear and symmetric. The governments of these five countries can use PPP to determine whether a currency is overvalued or undervalued, as well as if the country is experiencing differences between domestic and foreign inflation rates. These results have important policy implications for the emerging high-growth economies in this study.

• Publisher: 臺灣大學經濟學系,國立臺灣大學經濟學系,Taiwan Economic Review
• Subject: AESTAR test / AESTAR 檢定 / American dollar / asymmetric / Bias / EconLit / Economic policy / Emerging markets / Equilibrium / Foreign exchange rates / high-growth countries / Hypotheses / Nonlinear programming / nonlinear unit root test / Purchasing power parity / Studies / TSSCI / Validity / 購買力平價 / 非對稱 / 非線性單根檢定 / 高成長國家