Purchasing Power Parity in Developing Countries: Evidence from Conventional and Fractional Cointegration Tests

Authors

  • A. C. Arize College of Business and Technologym, Texas A & M University U.S.A., United States
  • John Malindretos Yeshiva University, New York, NY 10033 - 3201, United States
  • Elias C. Grivoyannis Yeshiva University, New York, NY 10033 - 3201, United States

DOI:

https://doi.org/10.32890/ijbf2004.2.1.3

Abstract

This paper examines the long-run validity of purchasing power parity (PPP) for fourteen developing countries. The period examined is 1973:4 through 2002:8. The methods of Elliot, Rothemberg and Stock (1996), Kwiattkoski et al. (1992) and Geweke and Porter-Hudak (1983) are employed to detect the time series properties of exchange rates and consumer price indices of these countries. We find that these variables are nonstationary. We then utilize these data to test the PPP using both conventional and fractional approaches. Estimates of the cointegrating relations are obtained using estimators suggested by Stock and Watson (1993) and Phillips and Hanson (1990), respectively. The results are consistent with the argument that, during the recent floating exchange-rate period, PPP holds well, at least in a weak form, in developing countries where the general price level movements overshadow the factors causing deviations from the PPP.

 

References

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Published

02-06-2004

Issue

Vol. 2 No. 1 (2004): International Journal of Banking and Finance (IJBF) Vol. 2, No.1, 2004

Section

Articles

How to Cite

Arize, A. C., Malindretos, J., & Grivoyannis, E. C. (2004). Purchasing Power Parity in Developing Countries: Evidence from Conventional and Fractional Cointegration Tests. International Journal of Banking and Finance, 2(1), 29-43. https://doi.org/10.32890/ijbf2004.2.1.3

Research impact

Harvested 2026-09-07
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Identifiers DOI 10.32890/ijbf2004.2.1.3 OpenAlex W45530492