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Revisiting the test of purchasing power parity and structural breaks of East Asian countries


Citation

Yahya, Mohamed Hisham and Amin Noordin, Bany Ariffin and Abdul Hadi, Abdul Razak (2011) Revisiting the test of purchasing power parity and structural breaks of East Asian countries. International Journal of Economics and Management, 5 (2). pp. 333-350. ISSN 1823-836X

Abstract

This paper re-examines the long-run purchasing power parity (PPP) relationship for five Asian countries’ (Malaysia, Singapore, Indonesia, South Korea and Thailand) relative to US dollars during a period with structural breaks. The result indicates the evidence of PPP for all the countries with relative to the USA after allowing for a single break in the fourth quarter of 2008 and/or in the fourth quarter of 1997. Nevertheless, allowing for multiple breaks is warranted when testing the validity of long-run PPP for Asian countries because there is evidence that Asian countries have been impacted by 1997 Asian crisis and 2008 US financial crisis. The results suggest that if structural breaks are present but being ignored, the conventional Johansen procedure may yield erroneous results and lead policy-makers and arbitragers to make decisions which are less accurate.


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Additional Metadata

Item Type: Article
Divisions: Faculty of Economics and Management
Publisher: Faculty of Economics and Management, Universiti Putra Malaysia
Keywords: Purchasing power parity; Price; Engle-Granger cointegration test; Error correction model; Asian financial crisis; Quandt Andrews test
Depositing User: Nabilah Mustapa
Date Deposited: 03 Aug 2015 06:37
Last Modified: 03 Aug 2015 06:37
URI: http://psasir.upm.edu.my/id/eprint/39487
Statistic Details: View Download Statistic

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