Empirical examination on the long run purchasingpower parity: evidence from parallel and officialmarket exchange rates

HB Economic Theory

Man, Luo ; Ronald, MacDonald

University:University of Glasgow

Department:Adam Smith Business School

关键词: HB Economic Theory;   

Others  :  http://theses.gla.ac.uk/5296/1/2014luomphil%28r%29.pdf

来源: University of Glasgow

【 摘 要 】

The thesis undertakes an empirical analysis of the parallel market exchange rate behaviorin the post-Bretton-Woods era based on monthly data spanning the period 1973m01 to1998 m12 for a heterogeneous group of 56 countries across the globe. The preliminaryinvestigation regress a crash dummy on parallel market premium using a Binary Choicemodel. The main analysis is conducted by estimating the traditional and a parallel marketvariant of PPP using the Johansen Multivariate Cointegration method. Based upon theVEC models obtained the hypothesis of a weak-form and a strong-form PPP are tested inthe form of identifying restrictions on the cointegrating vectors, respectively, whilst thejoint hypothesis of a long-run strong from PPP for parallel rate as well as long-runinformational efficiency in the parallel market is tested for the alternative model. Theempirical results obtained suggest that: weak-form PPP models receive stronger supportthan the alternative model across the whole sample especially for the Latin Americaneconomies. The strong-form PPP is best received for African economies but mostly for theparallel exchange rate solely. The use of parallel market exchange rates and wholesaleprice indices has been shown to be more supportive of the PPP validity, especially for thestrong-form PPP. The empirical findings emphasize the need to adopt more flexibleexchange rate policies, while the liberalization of the capital flows and the globalintegration of the currency markets are in favour of the countries that avoid adoptingrestrictive macroeconomic policies.