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Long-run purchasing power parity and asymmetric adjustment in BRICs

Author

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  • Hsu-Ling Chang
  • Chi-Wei Su
  • Meng-Nan Zhu
  • Pei Liu

Abstract

The primary aim of this study is an attempt to determine whether the Purchasing Power Parity (PPP) hypothesis holds for those countries that have collectively come to be known as 'BRICs', namely, Brazil, Russia, India and China. We use the momentum threshold cointegration tests (advanced by Enders and Siklos, 2001) to investigate whether any asymmetric adjustment is discernible for BRICs, and show that whilst the Engle-Granger test (which assumes only symmetric adjustment) fails to reveal any cointegrational relationship for BRICs, the threshold cointegration test (with asymmetric adjustment) provides clear evidence of long-run PPP for BRICs, with the notable exception of China. We conclude that asymmetric adjustment of nominal exchange rates plays an important role in eliminating deviations from long-run PPP.

Suggested Citation

  • Hsu-Ling Chang & Chi-Wei Su & Meng-Nan Zhu & Pei Liu, 2010. "Long-run purchasing power parity and asymmetric adjustment in BRICs," Applied Economics Letters, Taylor & Francis Journals, vol. 17(11), pages 1083-1087.
    • Handle: RePEc:taf:apeclt:v:17:y:2010:i:11:p:1083-1087
    DOI: 10.1080/00036840902817458
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    Cited by:

    1. KARGI, Bilal, 2014. "The Effects of BRICS and MATIK Countries on World Economy and Cointegration Analysis The Long Term Relation G-7 Growth Rates (1962-2012)," MPRA Paper 55693, University Library of Munich, Germany.
    2. Emmanuel Numapau Gyamfi & Adam Anokye Mohammed, 2017. "Validity of Purchasing Power Parity in BRICS under a DFA Approach," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 13(1), pages 17-28, February.
    3. E.N. Gyamfi, 2017. "Testing the Validity of Purchasing Power Parity in the BRICS: Further Evidence," EuroEconomica, Danubius University of Galati, issue 2(36), pages 117-122, November.
    4. KARGI, Bilal, 2014. "Structural Breakage and Long Term Cointegration Analysis for Economic Growth in G-7, BRICS and MATIK Countries (1962-2012)," MPRA Paper 57106, University Library of Munich, Germany.
    5. Liu, Tengdong & Hammoudeh, Shawkat & Thompson, Mark A., 2013. "A momentum threshold model of stock prices and country risk ratings: Evidence from BRICS countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 27(C), pages 99-112.
    6. Kargi, Bilal, 2014. "Structural Breakage and Long-term Cointegration Analysis for Economic Growth in G-7, BRICS and MATIK Countries," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 13(4), pages 431-442.

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