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Testing The Modified-Combined Ppp And Uip Hypothesis In South Asian Economies

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  • Abdul RASHID

Abstract

In this paper, the interrelations between PPP and UIP are modified and tested for South Asian economies using multivariate cointegration approach. The study uses monthly data and sample period varies cross-country according to floating exchange rate regime. The results obtained are highly supportive of this version of the combined PPP and UIP, which takes into account the non-traded and imperfect capital mobility phenomena. Consistent with the capital enhanced equilibrium exchange rates (CHEERs) approach, the determination of the nominal exchange rate is consistent with the UIP-PPP conditional equilibrium. The interaction between PPP and UIP has consequential implications for financial reforms, an exchange rate based stabilization program and exchange rate policy alike.

Suggested Citation

  • Abdul RASHID, 2009. "Testing The Modified-Combined Ppp And Uip Hypothesis In South Asian Economies," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 9(1).
    • Handle: RePEc:eaa:aeinde:v:9:y:2009:i:1_18
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    References listed on IDEAS

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    More about this item

    Keywords

    Purchasing Power Parity; Uncovered Interest Rate Parity; Equilibrium Exchange Rate; South Asian Economies; Fear of Floating; Multivariate Cointegration Analysis;
    All these keywords.

    JEL classification:

    • C39 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Other
    • F29 - International Economics - - International Factor Movements and International Business - - - Other
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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