New Evidence on Real Exchange Rate Stationarity and Purchasing Power Parity in Less Developed Countries

Posted: 15 Oct 2001

See all articles by Mark J. Holmes

Mark J. Holmes

University of Waikato - Management School, Department of Economics

Abstract

This study tests for relative purchasing power parity among a sample of thirty less developed countries. For this purpose, a new test advocated by Im, Pesaran and Shin is employed which allows one to test for unit roots in heterogeneous panel datasets. The stationarity of at least one real exchange rate is identified where the average ADF statistic based on demeaned real exchange rate data is significantly different from zero. Using quarterly data covering the period 1973-99, this study finds evidence against purchasing power parity for most less developed countries. This conclusion is also drawn from panels based on region and inflationary experience as well as the application of a panel approach based on seemingly unrelated regression analysis.

Suggested Citation

Holmes, Mark J., New Evidence on Real Exchange Rate Stationarity and Purchasing Power Parity in Less Developed Countries. Journal of Macroeconomics, Vol. 23, No. 4, Fall 2001. Available at SSRN: https://ssrn.com/abstract=271083

Mark J. Holmes (Contact Author)

University of Waikato - Management School, Department of Economics ( email )

Hamilton
New Zealand

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