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Purchasing power parity as a long-term memory process: Evidence from some emerging countries

Mohamed Bilel Triki (Faculty of Economics and Management, University of Tunis El Manar, El Manar, Tunisia)
Samir Maktouf (Faculty of Economics and Management, University of Tunis El Manar, El Manar, Tunisia)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 21 September 2015

631

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

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