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Purchasing Power Parity and the Real Exchange Rate in Bangladesh: A Nonlinear Analysis

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  • Ibrahim Chowdhury

Abstract

The long-run purchasing power parity (PPP) hypothesis is examined using data for Bangladesh and four trading partners – the US, Euro area, Japan and India – during the period 1994 to 2002. We apply recently developed nonlinear econometric techniques and provide strong evidence for highly nonlinear mean-reversion of real bilateral Bangladesh taka exchange rates toward a stable long-run equilibrium. Our findings imply strong support for the validity of long-run PPP as well as for the theoretical models that predict nonlinear adjustment in real exchange rates.

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  • Ibrahim Chowdhury, 2007. "Purchasing Power Parity and the Real Exchange Rate in Bangladesh: A Nonlinear Analysis," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 12(1), pages 61-75.
    • Handle: RePEc:taf:rjapxx:v:12:y:2007:i:1:p:61-75
    DOI: 10.1080/13547860601083736
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    Cited by:

    1. Raihan, Selim & Abdullah, S M & Barkat, Aroni & Siddiqua, Salina, 2017. "Mean Reversion of the Real Exchange Rate and the validity of PPP Hypothesis in the context of Bangladesh: A Holistic Approach," MPRA Paper 77172, University Library of Munich, Germany.
    2. Mohsen Bahmani‐Oskooee & Scott W. Hegerty, 2009. "Purchasing Power Parity In Less‐Developed And Transition Economies: A Review Paper," Journal of Economic Surveys, Wiley Blackwell, vol. 23(4), pages 617-658, September.
    3. S. M. Woahid Murad, 2016. "Is the Exchange Rate of Bangladesh Mean Reverting? A Panel Unit Root Approach," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 6(2), pages 100-108, February.

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