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Nonlinear adjustment to purchasing power parity in China

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  • Tsangyao Chang

Abstract

This study applies a simple and powerful nonlinear unit root test proposed by Sollis (2009) to investigate the Purchasing Power Parity (PPP) for China's real exchange rate vis-à-vis her nine trading partner countries over the period January 1986 to October 2009. The empirical results indicate that China's real exchange is a nonlinear process and a unit root in real exchange rate was not found for most of the cases under study. These results provide strong support for PPP for China relative to her major trading partner countries.

Suggested Citation

  • Tsangyao Chang, 2012. "Nonlinear adjustment to purchasing power parity in China," Applied Economics Letters, Taylor & Francis Journals, vol. 19(9), pages 843-848, June.
    • Handle: RePEc:taf:apeclt:v:19:y:2012:i:9:p:843-848
    DOI: 10.1080/13504851.2011.607111
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    1. Kai-Hua WANG & Chi-Wei SU & Hsu-Ling CHANG & Ji MA & Cristina IOVU, 2017. "Purchasing Power Parity In China: An Empirical Investigation Based On Bootstrap Rollingwindow Test," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 166-181, December.
    2. Zhang, Zhibai, 2014. "Is there a rule of thumb for absolute purchasing power parity to hold?," MPRA Paper 55338, University Library of Munich, Germany.
    3. Boršič Darja & Bekő Jani, 2018. "Purchasing power parity in ASEAN+3: an application of panel unit root tests," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 4(1), pages 42-52, June.
    4. Andrew Phiri, 2017. "Nonlinear adjustment effects in the purchasing power parity," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 60(2), pages 14-38.
    5. Burak Güriş & Yaşar Yaşgül, 2015. "Does the Fisher hypothesis hold for the G7 countries? Evidence from ADL threshold cointegration test," Quality & Quantity: International Journal of Methodology, Springer, vol. 49(6), pages 2549-2557, November.
    6. Selahattin GURIS & Burak GURIS & Turgut UN, 2016. "Interest Rates, Fisher Effect And Economic Development In Turkey, 1989-2011," Revista Galega de Economía, University of Santiago de Compostela. Faculty of Economics and Business., vol. 25(2), pages 95-100.
    7. Hiroshi Ono, 2014. "The government expenditure-economic growth relation in Japan: an analysis by using the ADL test for threshold cointegration," Applied Economics, Taylor & Francis Journals, vol. 46(28), pages 3523-3531, October.
    8. Hüseyin Şen & Ayşe Kaya & Savaş Kaptan & Metehan Cömert, 2019. "Interest rates, inflation, and exchange rates in fragile EMEs: A fresh look at the long-run interrelationships," Working Papers halshs-02095652, HAL.
    9. Aziza Syzdykova, 2018. "The Relationship between the Oil Price Shocks and the Stock Markets: The Example of Commonwealth of Independent States Countries," International Journal of Energy Economics and Policy, Econjournals, vol. 8(6), pages 161-166.
    10. Works, Richard Floyd, 2016. "Econometric modeling of exchange rate determinants by market classification: An empirical analysis of Japan and South Korea using the sticky-price monetary theory," MPRA Paper 76382, University Library of Munich, Germany.
    11. Dimitriou, Dimitrios & Simos, Theodore, 2013. "Testing purchasing power parity for Japan and the US: A structural-break approach," Japan and the World Economy, Elsevier, vol. 28(C), pages 53-59.
    12. E. N. Gyamfi & E. F. Appiah, 2019. "Further evidence on the validity of purchasing power parity in selected African countries," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 43(2), pages 330-343, April.
    13. Yavuz, Nilgün Çil & Yilanci, Veli, 2012. "Testing For Nonlinearity In G7 Macroeconomic Time Series," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 69-79, September.
    14. Phiri, Andrew, 2014. "Purchasing power parity (PPP) between South Africa and her main currency exchange partners: Evidence from asymmetric unit root tests and threshold co-integration analysis," MPRA Paper 53659, University Library of Munich, Germany.
    15. S. M. Woahid Murad & Mohammad Amzad Hossain, 2018. "The ASEAN experience of the purchasing power parity theory," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 4(1), pages 1-10, December.
    16. Bekő Jani & Boršič Darja, 2018. "Testing the Purchasing Power Parity Hypothesis: Case of ASEAN Economies," Naše gospodarstvo/Our economy, Sciendo, vol. 64(4), pages 74-85, December.

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