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TESTING THE PURCHASING POWER PARITY HYPOTHESIS FOR BRICS: EVIDENCE FROM THE FOURIER UNIT ROOT AND COINTEGRATION TEST

Year 2021, Volume: 8 Issue: 3, 1394 - 1406, 30.11.2021
https://doi.org/10.30798/makuiibf.822369

Abstract

This study is a review of the purchasing power parity hypothesis applied to BRICS countries (Brazil, Russia, India, China, and South Africa). For each country, time series based on a Fourier perspective were applied. The initial stages of the study analyzed the stationarity of the series using Fourier unit root testing. The series were found to be stationary at level I(1), paving the way for the Fourier Shin cointegration test, which constituted the second stage. The analysis revealed cointegration associations with all BRICS countries. Hence, it is understood that the purchasing power parity theory applies for all five countries.

Project Number

yok

References

  • Andre, C., M., Balcilar, T. Chang, L. A. Gil-Alana, and R. Gupta. 2017. “Current Account Sustainability in G7 and BRICS: Evidence from a LONG-Memory Model with Structural Breaks.” The Journal of International Trade & Economic Development, 1-17. doi:10.1080/09638199.2017.1410853.
  • Bahmani-Oskooee, M., and O. Ranjbar. 2016. “Quantile Unit Root Test and PPP: Evidence from 23 OECD Countries.” Applied Economics 48, 2899-2911. doi:10.1080/00036846.2015.1130794.
  • Balassa, B. 1964. “The Purchasing-Power Parity Doctrine: A Reappraisal.” Journal of political Economy 72 (6): 584-596. doi:10.1086/258965.
  • Becker, R., W. Enders, and J. Lee. 2006. “A Stationarity Test in the Presence of an Unknown Number of Smooth Breaks.” Journal of Time Series Analysis 27 (3): 381-409. doi:10.1111/j.1467-9892.2006.00478.x.
  • Bergin, P. R., R. Glick, and J. L. Wu. 2017. ““Conditional PPP” and Real Exchange Rate Convergence in the Euro Area.” Journal of International Money and Finance 73: 78-92. doi:10.1016/j.jimonfin.2017.02.005.
  • Cassel, G. 1918. “Abnormal Deviations in International Exchanges.” The Economic Journal 28 (112): 413-415. doi:10.2307/2223329.
  • Chang, H. L., C. W. Su, M. N. Zhu, and P. Liu. 2010. “Long-run purchasing power parity and asymmetric adjustment in BRICs.” Applied Economics Letters 17 (11): 1083-1087. doi:10.1080/00036840902817458.
  • Chang, T., C. H. Lee, and K. Hung. 2012. “Can the PPP Stand on the BRICS? The ADL Test for Threshold Cointegration.” Applied Economics Letters 19 (12): 1123-1127. doi:10.1080/13504851.2011.615727.
  • Chen, F. C. 2017. “Purchasing Power Parity and Nonlinear Real Exchange Rate Adjustment: Evidence From High-Growth Countries.” Taiwan Economic Review 45 (2): 195-224. doi:10.6277/ter.2017.452.1.
  • Drine, I., and C. Rault. 2008. “Purchasing Power Parity for Developing and Developed Countries. What Can We Learn From Non‐Stationary Panel Data Models?.” Journal of Economic Surveys 22 (4): 752-773. doi:10.1111/j.1467-6419.2007.00548.x.
  • Eslamloueyan, K., and A. Kia. 2015. “Determinants of the Real Exchange Rate in Oil-Producing Countries of the Middle East and North Africa: A Panel Data Investigation.” Emerging Markets Finance and Trade 51(4): 842-855. doi: 10.1080/1540496X.2015.1043213.
  • Fleissig, A. and J. Strauss. 2000. “Panel Unit-Root Tests of Purchasing Power Parity for Price Indices”. Journal of International Money and Finance 19: 489-506. doi:10.1016/S0261-5606(00)00017-6.
  • Gallant, R. 1981. “On the Basis in Flexible Functional Form and an Essentially Unbiased Form: The Flexible Fourier Form.” Journal of Econometrics 15 (1): 211–353. doi:10.1016/0304-4076(81)90115-9.
  • Holmes, M. J., J. Otero, and T. Panagiotidis. 2012. “PPP in OECD Countries: An Analysis of Real Exchange Rate Stationarity, Cross-Sectional Dependency and Structural Breaks.” Open Economies Review 23 (5): 767-783. doi:10.1007/s11079-011-9234-0.
  • Huang, C. H., and C. Y. Yang. 2015. “European Exchange Rate Regimes and Purchasing Power Parity: An Empirical Study on Eleven Eurozone Countries.” International Review of Economics & Finance 35: 100-109. doi:10.1016/j.iref.2014.09.008.
  • Iyke, B. N., and N. M. Odhiambo. 2017. “Foreign Exchange Markets and the Purchasing Power Parity Theory: Evidence from two SOUTHERN African Countries.” African Journal of Economic and Management Studies 8 (1): 89-102. doi:10.1108/AJEMS-03-2017-147.
  • Jiang, C., M. Bahmani-Oskooee, and T. Chang. 2015. “Revisiting purchasing Power Parity in OECD.” Applied Economics 47 (40): 4323-4334. doi:10.1080/00036846.2015.1026592.
  • Jiang, C., N. Jian, T. Y. Liu, and C. W. Su. 2016. “Purchasing Power Parity and Real Exchange Rate in Central Eastern European Countries.” International Review of Economics & Finance 44: 349-358. doi:10.1016/j.iref.2016.02.006.
  • Kalyoncu, H., and K. Kalyoncu. .2008. “Purchasing Power Parity in OECD Countries: Evidence from Panel Unit Root.” Economic Modelling 25 (3): 440-445. doi:10.1016/j.econmod.2007.07.003.
  • Kavkler, A., D. Boršič, and J. Bekő. (2016). “Is the PPP Valid for the EA-11 Countries? New Evidence from Nonlinear Unit Root Tests.” Economic research-Ekonomska istraživanja 29 (1): 612-622. doi:10.1080/1331677X.2016.1189842.
  • Kim, Y. 1990. “Purchasing Power Parity in the Long Run: A Cointegration Approach.” Journal of Money, Credit and Banking 22 (4): 491-503. doi:10.2307/1992433.
  • Kwiatkowski, D., P. C. Phillips, P. Schmidt, and Y. Shin. 1992. “Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We that Economic Time Series Have A Unit Root?.” Journal of Econometrics 54 (1-3): 159-178. doi:10.1016/0304-4076(92)90104-Y.
  • Layton, A. P., and J. P. Stark. 1990. Co-integration as an Empirical Test of Purchasing Power Parity. Journal of Macroeconomics 12 (1): 125-136. doi:10.1016/0164-0704(90)90060-N.
  • Li, H., Z. Lin, and C. Hsiao. 2015. “Testing Purchasing Power Parity Hypothesis: A Semiparametric Varying Coefficient Approach.” Empirical Economics 48 (1): 427-438. doi:10.1007/s00181-014-0813-y.
  • Lyon, M., and J. Olmo. 2018. “Does the PPP Condition Hold for Oil‐Exporting Countries? A Quantile Cointegration Regression Approach.” International Journal of Finance & Economics 23 (2): 79-93. doi:10.1002/ijfe.1603.
  • Narayan, P. K. 2005. “New Evidence on Purchasing Power Parity from 17 OECD Countries.” Applied Economics 37 (9): 1063-1071. doi:10.1080/00036840500081713.
  • Narayan, P. K, and B. C. Prasad. 2005. “The Validity of Purchasing Power Parity Hypothesis for Eleven Middle Eastern Countries.” Review of Middle East Economics and Finance 3: 135-149. doi:10.2202/1475-3693.1038.
  • Papell, D. H. 1997. “Searching for Stationarity: Purchasing Power Parity Under the Current Float.” Journal of International Economics 43 (3-4): 313-332. doi:10.1016/S0022-1996(96)01467-5.
  • Peng, H., Liu, Z., & Chang, T. (2017). Revisiting Purchasing Power Parity in BRICS Countries Using More Powerful Quantile Unit-Root Tests with Stationary Covariates. Communications in Statistics-Theory and Methods 46 (20): 10051-10057. doi:10.1080/03610926.2016.1228968.
  • Shin, Y. 1994. “A Residual-Based Test of the Null of Cointegration Against the Alternative of No Cointegration.” Econometric Theory 10 (1): 91-115. doi:10.1017/S0266466600008240.
  • Taylor, M. P. 1988. “An Empirical Examination of Long-Run Purchasing Power Parity Using Cointegration Techniques.” Applied economics 20 (10): 1369-1381. doi:10.1080/00036848800000107.
  • Taylor, M. P., and L. Sarno. 1998. “The Behavior of Real Exchange Rates during the Post-Bretton Woods Period.” Journal of International Economics 46 (2): 281-312. doi:10.1016/S0022-1996(97)00054-8.
  • Telatar, E., and H. Kazdagli. 1998. “Re-Examine the Long-Run Purchasing Power Parity Hypothesis for a High Inflation Country: The Case of Turkey 1980–93.” Applied Economics Letters 5 (1): 51-53. doi:10.1080/758540127.
  • Tsong, C. C., C. F. Lee, L. J. Tsai, and T. C. Hu. 2016. “The Fourier Approximation and Testing for the Null of Cointegration.” Empirical Economics 51 (3): 1085-1113. doi:10.1007/s00181-015-1028-6.
  • Wilson, D., and R. Purushothaman. 2003. Dreaming with BRICs: The path to 2050. Goldman Sachs global economics paper no. 99. http://www.goldmansachs.com/our-thinking/archive/archive-pdfs/brics-dream.pdf.
  • Yilanci, V., and Z. A. Eris. 2012. “Are Tourism Markets of Turkey Converging or Not? A Fourier Stationary Analysis.” Anatolia 23 (2): 207-216. doi:10.1080/13032917.2012.665010.
  • Yilanci, V., M. Aslan, and Ö. Özgür. 2017. “Testing the Validity of PPP Theory for African Countries.” Applied Economics Letters: 1-5. doi:10.1080/13504851.2017.1418066.

BRICS İÇİN SATIN ALMA GÜCÜ PARİTESİ HİPOTEZİNİN TEST EDİLMESİ: FOURIER BİRİM KÖK VE EŞBÜTÜNLEŞME TESTİNDEN KANIT

Year 2021, Volume: 8 Issue: 3, 1394 - 1406, 30.11.2021
https://doi.org/10.30798/makuiibf.822369

Abstract

Bu çalışmada, BRICS (Brezilya, Rusya, Hindistan, Çin ve Güney Afrika) ülkelerinin satın alma gücü paritesi teorisi incelenmiştir. Her ülke için Fourier yaklaşımı içeren zaman serisi kullanılmıştır. Çalışmanın ilk aşamasında serilerin durağanlıkları Fourier KPSS testi kullanılmıştır. Seriler I(1) düzeyinde durağan oldukları tespit edilerek ikinci aşama olan Fourier Shin eşbütünleşme testine geçilmiştir. Yapılan analiz sonucu tüm BRICS ülkelerinde eşbütünleşme ilişkisi bulunmuştur. Böylece bu beş ülkede satın alma gücü paritesi teorisinin geçerli olduğu sonucuna ulaşılmıştır.

Supporting Institution

yok

Project Number

yok

Thanks

yok

References

  • Andre, C., M., Balcilar, T. Chang, L. A. Gil-Alana, and R. Gupta. 2017. “Current Account Sustainability in G7 and BRICS: Evidence from a LONG-Memory Model with Structural Breaks.” The Journal of International Trade & Economic Development, 1-17. doi:10.1080/09638199.2017.1410853.
  • Bahmani-Oskooee, M., and O. Ranjbar. 2016. “Quantile Unit Root Test and PPP: Evidence from 23 OECD Countries.” Applied Economics 48, 2899-2911. doi:10.1080/00036846.2015.1130794.
  • Balassa, B. 1964. “The Purchasing-Power Parity Doctrine: A Reappraisal.” Journal of political Economy 72 (6): 584-596. doi:10.1086/258965.
  • Becker, R., W. Enders, and J. Lee. 2006. “A Stationarity Test in the Presence of an Unknown Number of Smooth Breaks.” Journal of Time Series Analysis 27 (3): 381-409. doi:10.1111/j.1467-9892.2006.00478.x.
  • Bergin, P. R., R. Glick, and J. L. Wu. 2017. ““Conditional PPP” and Real Exchange Rate Convergence in the Euro Area.” Journal of International Money and Finance 73: 78-92. doi:10.1016/j.jimonfin.2017.02.005.
  • Cassel, G. 1918. “Abnormal Deviations in International Exchanges.” The Economic Journal 28 (112): 413-415. doi:10.2307/2223329.
  • Chang, H. L., C. W. Su, M. N. Zhu, and P. Liu. 2010. “Long-run purchasing power parity and asymmetric adjustment in BRICs.” Applied Economics Letters 17 (11): 1083-1087. doi:10.1080/00036840902817458.
  • Chang, T., C. H. Lee, and K. Hung. 2012. “Can the PPP Stand on the BRICS? The ADL Test for Threshold Cointegration.” Applied Economics Letters 19 (12): 1123-1127. doi:10.1080/13504851.2011.615727.
  • Chen, F. C. 2017. “Purchasing Power Parity and Nonlinear Real Exchange Rate Adjustment: Evidence From High-Growth Countries.” Taiwan Economic Review 45 (2): 195-224. doi:10.6277/ter.2017.452.1.
  • Drine, I., and C. Rault. 2008. “Purchasing Power Parity for Developing and Developed Countries. What Can We Learn From Non‐Stationary Panel Data Models?.” Journal of Economic Surveys 22 (4): 752-773. doi:10.1111/j.1467-6419.2007.00548.x.
  • Eslamloueyan, K., and A. Kia. 2015. “Determinants of the Real Exchange Rate in Oil-Producing Countries of the Middle East and North Africa: A Panel Data Investigation.” Emerging Markets Finance and Trade 51(4): 842-855. doi: 10.1080/1540496X.2015.1043213.
  • Fleissig, A. and J. Strauss. 2000. “Panel Unit-Root Tests of Purchasing Power Parity for Price Indices”. Journal of International Money and Finance 19: 489-506. doi:10.1016/S0261-5606(00)00017-6.
  • Gallant, R. 1981. “On the Basis in Flexible Functional Form and an Essentially Unbiased Form: The Flexible Fourier Form.” Journal of Econometrics 15 (1): 211–353. doi:10.1016/0304-4076(81)90115-9.
  • Holmes, M. J., J. Otero, and T. Panagiotidis. 2012. “PPP in OECD Countries: An Analysis of Real Exchange Rate Stationarity, Cross-Sectional Dependency and Structural Breaks.” Open Economies Review 23 (5): 767-783. doi:10.1007/s11079-011-9234-0.
  • Huang, C. H., and C. Y. Yang. 2015. “European Exchange Rate Regimes and Purchasing Power Parity: An Empirical Study on Eleven Eurozone Countries.” International Review of Economics & Finance 35: 100-109. doi:10.1016/j.iref.2014.09.008.
  • Iyke, B. N., and N. M. Odhiambo. 2017. “Foreign Exchange Markets and the Purchasing Power Parity Theory: Evidence from two SOUTHERN African Countries.” African Journal of Economic and Management Studies 8 (1): 89-102. doi:10.1108/AJEMS-03-2017-147.
  • Jiang, C., M. Bahmani-Oskooee, and T. Chang. 2015. “Revisiting purchasing Power Parity in OECD.” Applied Economics 47 (40): 4323-4334. doi:10.1080/00036846.2015.1026592.
  • Jiang, C., N. Jian, T. Y. Liu, and C. W. Su. 2016. “Purchasing Power Parity and Real Exchange Rate in Central Eastern European Countries.” International Review of Economics & Finance 44: 349-358. doi:10.1016/j.iref.2016.02.006.
  • Kalyoncu, H., and K. Kalyoncu. .2008. “Purchasing Power Parity in OECD Countries: Evidence from Panel Unit Root.” Economic Modelling 25 (3): 440-445. doi:10.1016/j.econmod.2007.07.003.
  • Kavkler, A., D. Boršič, and J. Bekő. (2016). “Is the PPP Valid for the EA-11 Countries? New Evidence from Nonlinear Unit Root Tests.” Economic research-Ekonomska istraživanja 29 (1): 612-622. doi:10.1080/1331677X.2016.1189842.
  • Kim, Y. 1990. “Purchasing Power Parity in the Long Run: A Cointegration Approach.” Journal of Money, Credit and Banking 22 (4): 491-503. doi:10.2307/1992433.
  • Kwiatkowski, D., P. C. Phillips, P. Schmidt, and Y. Shin. 1992. “Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We that Economic Time Series Have A Unit Root?.” Journal of Econometrics 54 (1-3): 159-178. doi:10.1016/0304-4076(92)90104-Y.
  • Layton, A. P., and J. P. Stark. 1990. Co-integration as an Empirical Test of Purchasing Power Parity. Journal of Macroeconomics 12 (1): 125-136. doi:10.1016/0164-0704(90)90060-N.
  • Li, H., Z. Lin, and C. Hsiao. 2015. “Testing Purchasing Power Parity Hypothesis: A Semiparametric Varying Coefficient Approach.” Empirical Economics 48 (1): 427-438. doi:10.1007/s00181-014-0813-y.
  • Lyon, M., and J. Olmo. 2018. “Does the PPP Condition Hold for Oil‐Exporting Countries? A Quantile Cointegration Regression Approach.” International Journal of Finance & Economics 23 (2): 79-93. doi:10.1002/ijfe.1603.
  • Narayan, P. K. 2005. “New Evidence on Purchasing Power Parity from 17 OECD Countries.” Applied Economics 37 (9): 1063-1071. doi:10.1080/00036840500081713.
  • Narayan, P. K, and B. C. Prasad. 2005. “The Validity of Purchasing Power Parity Hypothesis for Eleven Middle Eastern Countries.” Review of Middle East Economics and Finance 3: 135-149. doi:10.2202/1475-3693.1038.
  • Papell, D. H. 1997. “Searching for Stationarity: Purchasing Power Parity Under the Current Float.” Journal of International Economics 43 (3-4): 313-332. doi:10.1016/S0022-1996(96)01467-5.
  • Peng, H., Liu, Z., & Chang, T. (2017). Revisiting Purchasing Power Parity in BRICS Countries Using More Powerful Quantile Unit-Root Tests with Stationary Covariates. Communications in Statistics-Theory and Methods 46 (20): 10051-10057. doi:10.1080/03610926.2016.1228968.
  • Shin, Y. 1994. “A Residual-Based Test of the Null of Cointegration Against the Alternative of No Cointegration.” Econometric Theory 10 (1): 91-115. doi:10.1017/S0266466600008240.
  • Taylor, M. P. 1988. “An Empirical Examination of Long-Run Purchasing Power Parity Using Cointegration Techniques.” Applied economics 20 (10): 1369-1381. doi:10.1080/00036848800000107.
  • Taylor, M. P., and L. Sarno. 1998. “The Behavior of Real Exchange Rates during the Post-Bretton Woods Period.” Journal of International Economics 46 (2): 281-312. doi:10.1016/S0022-1996(97)00054-8.
  • Telatar, E., and H. Kazdagli. 1998. “Re-Examine the Long-Run Purchasing Power Parity Hypothesis for a High Inflation Country: The Case of Turkey 1980–93.” Applied Economics Letters 5 (1): 51-53. doi:10.1080/758540127.
  • Tsong, C. C., C. F. Lee, L. J. Tsai, and T. C. Hu. 2016. “The Fourier Approximation and Testing for the Null of Cointegration.” Empirical Economics 51 (3): 1085-1113. doi:10.1007/s00181-015-1028-6.
  • Wilson, D., and R. Purushothaman. 2003. Dreaming with BRICs: The path to 2050. Goldman Sachs global economics paper no. 99. http://www.goldmansachs.com/our-thinking/archive/archive-pdfs/brics-dream.pdf.
  • Yilanci, V., and Z. A. Eris. 2012. “Are Tourism Markets of Turkey Converging or Not? A Fourier Stationary Analysis.” Anatolia 23 (2): 207-216. doi:10.1080/13032917.2012.665010.
  • Yilanci, V., M. Aslan, and Ö. Özgür. 2017. “Testing the Validity of PPP Theory for African Countries.” Applied Economics Letters: 1-5. doi:10.1080/13504851.2017.1418066.
There are 37 citations in total.

Details

Primary Language English
Journal Section Research Articles
Authors

Tuncer Gövdeli 0000-0002-6600-8684

Serpil Sumer 0000-0001-8452-0393

Project Number yok
Publication Date November 30, 2021
Submission Date November 6, 2020
Published in Issue Year 2021 Volume: 8 Issue: 3

Cite

APA Gövdeli, T., & Sumer, S. (2021). TESTING THE PURCHASING POWER PARITY HYPOTHESIS FOR BRICS: EVIDENCE FROM THE FOURIER UNIT ROOT AND COINTEGRATION TEST. Journal of Mehmet Akif Ersoy University Economics and Administrative Sciences Faculty, 8(3), 1394-1406. https://doi.org/10.30798/makuiibf.822369