Purchasing power parity as a long-term memory process: Evidence from some emerging countries
International Journal of Emerging Markets
ISSN: 1746-8809
Article publication date: 21 September 2015
Abstract
Purpose
The purpose of this paper is to focus on whether the deviations from the cointegrating relationship possess long memory and the fractional cointegration analyses may capture a wider range of mean-reversion behaviour than standard cointegration analyses.
Design/methodology/approach
This paper uses a fractional cointegration technique to test the purchasing power parity (PPP).
Findings
The authors found that PPP held, but very weakly, in the long run between the Argentine, Brazil, Chile, Colombia, Indonesia, Korea, Mexico, Thailand and Venezuela and US exchange rate during our floating exchange rate period but that the deviations from it did not follow a stationary process. Nevertheless, it is also found that the deviations from PPP exists and can be characterized by a fractionally integrated process in nine out of 13 countries studied.
Originality/value
The findings are consistent with the consensus of the empirical literature, reviewed earlier in this paper, on PPP between Argentine, Brazil, Chile, Colombia, Indonesia, Korea, Mexico, Thailand and Venezuela and the USA.
Keywords
Acknowledgements
JEL Classification — C22, C32, C52, F31, G15
Citation
Triki, M.B. and Maktouf, S. (2015), "Purchasing power parity as a long-term memory process: Evidence from some emerging countries", International Journal of Emerging Markets, Vol. 10 No. 4, pp. 711-725. https://doi.org/10.1108/IJoEM-02-2012-0021
Publisher
:Emerald Group Publishing Limited
Copyright © 2015, Emerald Group Publishing Limited