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Purchasing Power Parity in Pakistan: Evidence from Fourier Unit Root Tests
Emerging Markets Finance and Trade ( IF 4.859 ) Pub Date : 2020-01-03 , DOI: 10.1080/1540496x.2019.1709820
Fang She 1 , Muhammad Zakaria 1 , Mahmood Khan 2 , Jun Wen 1
Affiliation  

ABSTRACT

The paper empirically examines the validity of purchasing power parity (PPP) in Pakistan. For this purpose, unit root properties of real exchange rates (RERs) of Pakistan against its 21 major trading partners are examined using Fourier ADF (FADF) and Fourier KPSS (FKPSS) unit root tests for the period 1983Q1 to 2014Q4. Fourier unit root tests are used as they consider multiple temporary structural breaks and nonlinearity of the data. FADF test rejects the null hypothesis of unit root (non-stationary) in three RER series, while FKPSS test rejects the null hypothesis of stationary in nine RER series. Thus, FADF unit root test provide support for PPP hypothesis in three exchange rate series, while FKPSS test validates PPP theory in 12 exchange rate series. For robustness analysis, PPP equation is also estimated using regression analysis. The regression results show that PPP hypothesis is valid for nine exchange rate series. These findings suggest that PPP hypothesis partially holds in Pakistan.



中文翻译:

巴基斯坦的购买力平价:来自傅立叶单位根检验的证据

摘要

本文实证检验了巴基斯坦购买力平价 (PPP) 的有效性。为此,使用傅立叶 ADF (FADF) 和傅立叶 KPSS (FKPSS) 单位根检验检查了 1983 年第一季度至 2014 年第四季度巴基斯坦对其 21 个主要贸易伙伴的实际汇率 (RER) 的单位根属性。使用傅立叶单位根检验是因为它们考虑了数据的多个临时结构中断和非线性。FADF 检验在三个 RER 序列中拒绝单位根(非平稳)的原假设,而 FKPSS 检验在 9 个 RER 序列中拒绝平稳的原假设。因此,FADF 单位根检验在三个汇率序列中为 PPP 假设提供了支持,而 FKPSS 检验在 12 个汇率序列中验证了 PPP 理论。对于稳健性分析,PPP 方程也使用回归分析进行估计。回归结果表明 PPP 假设对九个汇率序列是有效的。这些发现表明 PPP 假设在巴基斯坦部分成立。

更新日期:2020-01-03
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