IDEAS home Printed from https://ideas.repec.org/a/taf/applec/v43y2011i21p2851-2861.html
   My bibliography  Save this article

Sticky prices and time to equilibrium: evidence from Asia-Pacific trade-related economies

Author

Listed:
  • Catherine Ho
  • M. Ariff

Abstract

The theoretical relation between exchange rate and prices has been a difficult proposition to find supporting evidence despite many studies of developed economies using standard research methods. The exchange rate to price relation appears to hold in the long run only, a result consistent with sticky price hypothesis. There is a need to add to this sticky price literature by examining more yet-studied economies to this area of research. This article presents results to support long-run equilibrium in the Asia-Pacific economies as being 5 years. The methodology is used to group countries with high-trade intensity within a region and value-weight the resulting variables to test the theory in a regional context. Our positive finding on the long-run equilibrium, we believe, helps in some ways to enrich the literature on the exchange rate behaviour of an important region for world trade.

Suggested Citation

  • Catherine Ho & M. Ariff, 2011. "Sticky prices and time to equilibrium: evidence from Asia-Pacific trade-related economies," Applied Economics, Taylor & Francis Journals, vol. 43(21), pages 2851-2861.
    • Handle: RePEc:taf:applec:v:43:y:2011:i:21:p:2851-2861
    DOI: 10.1080/09603100903425189
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/09603100903425189
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/09603100903425189?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. James R. Lothian & Mark P. Taylor, 2008. "Real Exchange Rates Over the Past Two Centuries: How Important is the Harrod‐Balassa‐Samuelson Effect?," Economic Journal, Royal Economic Society, vol. 118(532), pages 1742-1763, October.
    2. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
    3. Parsley, David C., 2007. "Accounting for real exchange rate changes in East Asia," Journal of International Money and Finance, Elsevier, vol. 26(8), pages 1355-1377, December.
    4. Manzur, Meher, 1990. "An international comparison of prices and exchange rates: a new test of purchasing power parity," Journal of International Money and Finance, Elsevier, vol. 9(1), pages 75-91, March.
    5. Schnabl, Gunther & Baur, Dirk, 2002. "Purchasing power parity: Granger causality tests for the yen-dollar exchange rate," Japan and the World Economy, Elsevier, vol. 14(4), pages 425-444, December.
    6. Sarno,Lucio & Taylor,Mark P., 2003. "The Economics of Exchange Rates," Cambridge Books, Cambridge University Press, number 9780521485845, October.
    7. Alan M. Taylor & Mark P. Taylor, 2004. "The Purchasing Power Parity Debate," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 135-158, Fall.
    8. Engel, Charles, 2000. "Long-run PPP may not hold after all," Journal of International Economics, Elsevier, vol. 51(2), pages 243-273, August.
    9. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
    10. Tamim Bayoumi & Ronald MacDonald, 1999. "Deviations of Exchange Rates from Purchasing Power Parity: A Story Featuring Two Monetary Unions," IMF Staff Papers, Palgrave Macmillan, vol. 46(1), pages 1-5.
    11. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "A panel project on purchasing power parity: Mean reversion within and between countries," Journal of International Economics, Elsevier, vol. 40(1-2), pages 209-224, February.
    12. Henry, Olan T. & Olekalns, Nilss, 2002. "Does the Australian dollar real exchange rate display mean reversion," Journal of International Money and Finance, Elsevier, vol. 21(5), pages 651-666, October.
    13. Mohsen Bahmani-Oskooee & Ali Kutan & Su Zhou, 2009. "Towards solving the PPP puzzle: evidence from 113 countries," Applied Economics, Taylor & Francis Journals, vol. 41(24), pages 3057-3066.
    14. Smallwood, Aaron D., 2008. "Measuring the persistence of deviations from purchasing power parity with a fractionally integrated STAR model," Journal of International Money and Finance, Elsevier, vol. 27(7), pages 1161-1176, November.
    15. Alan M. Taylor & Mark P. Taylor, 2004. "The Purchasing Power Parity Debate," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 135-158, Fall.
    16. Lothian, James R. & Taylor, Mark P., 2000. "Purchasing power parity over two centuries: strengthening the case for real exchange rate stability: A reply to Cuddington and Liang," Journal of International Money and Finance, Elsevier, vol. 19(5), pages 759-764, October.
    17. Abuaf, Niso & Jorion, Philippe, 1990. "Purchasing Power Parity in the Long Run," Journal of Finance, American Finance Association, vol. 45(1), pages 157-174, March.
    18. Froot, Kenneth A. & Rogoff, Kenneth, 1995. "Perspectives on PPP and long-run real exchange rates," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 32, pages 1647-1688, Elsevier.
    19. Cheng, Benjamin S., 1999. "Beyond the purchasing power parity: testing for cointegration and causality between exchange rates, prices, and interest rates," Journal of International Money and Finance, Elsevier, vol. 18(6), pages 911-924, December.
    20. Adler, Michael & Lehmann, Bruce, 1983. "Deviations from Purchasing Power Parity in the Long Run," Journal of Finance, American Finance Association, vol. 38(5), pages 1471-1487, December.
    21. Kim, Yoonbai, 1990. "Purchasing Power Parity in the Long Run: A Cointegration Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(4), pages 491-503, November.
    22. Lothian, James R & Taylor, Mark P, 1996. "Real Exchange Rate Behavior: The Recent Float from the Perspective of the Past Two Centuries," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 488-509, June.
    23. MacDonald, Ronald, 1993. "Long-Run Purchasing Power Parity: Is It for Real?," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 690-695, November.
    24. Serletis, Apostolos & Gogas, Periklis, 2004. "Long-horizon regression tests of the theory of purchasing power parity," Journal of Banking & Finance, Elsevier, vol. 28(8), pages 1961-1985, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ho, Catherine S.F. & Ariff, M., 2012. "Time to equilibrium in exchange rates: G-10 and Eastern European economies," Global Finance Journal, Elsevier, vol. 23(2), pages 94-107.
    2. Maria Eleftheriou & Nikolas A. Müller-Plantenberg, 2018. "The Purchasing Power Parity Fallacy: Time to Reconsider the PPP Hypothesis," Open Economies Review, Springer, vol. 29(3), pages 481-515, July.
    3. Johari, Mohamad Shukri & Habibullah, Muzafar & Abdul Ghani, Roseziahazni & Abdul Manaf, Suhaily Maizan, 2021. "The Macroeconomic Fundamentals of the Real Exchange Rate in Malaysia: Some Empirical Evidence," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 55(2), pages 81-89.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ho, Catherine S.F. & Ariff, M., 2012. "Time to equilibrium in exchange rates: G-10 and Eastern European economies," Global Finance Journal, Elsevier, vol. 23(2), pages 94-107.
    2. Catherine S. F. Ho & M. Ariff, 2009. "A Test of Purchasing Power Parity: Asia Pacific and Latin America," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 5(2), pages 33-53.
    3. Catherine S. F. Ho & M. Ariff, 2008. "The Role of Non-Parity Fundamentals in Exchange Rate Determination: Australia and the Asia Pacific Region," CARF F-Series CARF-F-125, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    4. Sarno, Lucio & Valente, Giorgio, 2006. "Deviations from purchasing power parity under different exchange rate regimes: Do they revert and, if so, how?," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 3147-3169, November.
    5. Yihui Lan, 2001. "The Explosion of Purchasing Power Parity," Economics Discussion / Working Papers 01-22, The University of Western Australia, Department of Economics.
    6. Alan M. Taylor & Mark P. Taylor, 2004. "The Purchasing Power Parity Debate," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 135-158, Fall.
    7. David O. Cushman, 2008. "Real exchange rates may have nonlinear trends," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(2), pages 158-173.
    8. Giorgio Canarella & Stephen M. Miller & Stephen K. Pollard, 2012. "Purchasing Power Parity between the UK and the Euro Area," Working Papers 1208, University of Nevada, Las Vegas , Department of Economics.
    9. Pavlidis, Efthymios G. & Paya, Ivan & Peel, David A., 2011. "Real exchange rates and time-varying trade costs," Journal of International Money and Finance, Elsevier, vol. 30(6), pages 1157-1179, October.
    10. Jean Imbs & Haroon Mumtaz & Morten O. Ravn & Hélène Rey, 2005. "PPP Strikes Back: Aggregation And the Real Exchange Rate," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(1), pages 1-43.
    11. Rod Tyers & Ying Zhang, 2014. "Real exchange rate determination and the China puzzle," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 28(2), pages 1-32, November.
    12. Giorgio Canarella & Stephen Miller & Stephen Pollard, 2014. "Purchasing Power Parity Between the UK and Germany: The Euro Era," Open Economies Review, Springer, vol. 25(4), pages 677-699, September.
    13. James R. Lothian & Mark P. Taylor, 2008. "Real Exchange Rates Over the Past Two Centuries: How Important is the Harrod‐Balassa‐Samuelson Effect?," Economic Journal, Royal Economic Society, vol. 118(532), pages 1742-1763, October.
    14. Kul B. Luintel, 2000. "Real exchange rate behaviour: evidence from black markets," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(2), pages 161-185.
    15. Miguel Carvalho & Paulo Júlio, 2012. "Digging out the PPP hypothesis: an integrated empirical coverage," Empirical Economics, Springer, vol. 42(3), pages 713-744, June.
    16. Brissimis, Sophocles N. & Sideris, Dimitris A. & Voumvaki, Fragiska K., 2005. "Testing long-run purchasing power parity under exchange rate targeting," Journal of International Money and Finance, Elsevier, vol. 24(6), pages 959-981, October.
    17. Taylor, Mark P. & Sarno, Lucio, 1998. "The behavior of real exchange rates during the post-Bretton Woods period," Journal of International Economics, Elsevier, vol. 46(2), pages 281-312, December.
    18. Alan M. Taylor, 2002. "A Century Of Purchasing-Power Parity," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 139-150, February.
    19. Choi, Jae Hoon & Song, Seongho, 2022. "Revisiting the PPP puzzle: Nominal exchange rate rigidity and region of inaction," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 78(C).
    20. Gabriel Rodriguez & Indira Romero, 2007. "The role of permanent and transitory components in the fluctuations of Latin-American real exchange rates," Applied Economics, Taylor & Francis Journals, vol. 39(21), pages 2713-2722.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:43:y:2011:i:21:p:2851-2861. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEC20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.