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Purchasing Power Parity and the Impact of the East Asian Currency Crisis

Author

Listed:
  • Louise Allsopp

    (School of Economics, University of Adelaide, Australia)

  • Ralf Zurbruegg

    (School of Commerce, University of Adelaide, Australia)

Abstract

This paper explores the impact of the East Asian crisis of 1997/98 on foreign exchange markets and purchasing power parity within the region. While many studies have attempted to test for PPP prior to these events, there has been little opportunity to test for this long run phenomenon in the post-crisis period. This study addresses the issue by applying Inoue (1999) and Johansen, Mosconi and Nielsen (2000) cointegration procedures to bilateral exchange rates deflated using consumer price indices. Along with endogenously determining a structural break at the time of the crisis, the empirical results shed light upon the significance of the East Asian crisis on long-run PPP within the region. The findings are generally supportive of PPP with the crisis leading to only shifts in long-run trends. However, the results are not homogenous across all countries which is partially attributed to how individual countries handled the crisis.

Suggested Citation

  • Louise Allsopp & Ralf Zurbruegg, 2003. "Purchasing Power Parity and the Impact of the East Asian Currency Crisis," Centre for International Economic Studies Working Papers 2003-03, University of Adelaide, Centre for International Economic Studies.
    • Handle: RePEc:adl:cieswp:2003-03
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    File URL: http://www.adelaide.edu.au/cies/papers/0303.pdf
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    References listed on IDEAS

    as
    1. Sheng, Hsiao-Ching & Tu, Anthony H., 2000. "A study of cointegration and variance decomposition among national equity indices before and during the period of the Asian financial crisis," Journal of Multinational Financial Management, Elsevier, vol. 10(3-4), pages 345-365, December.
    2. de Brouwer,Gordon, 1999. "Financial Integration in East Asia," Cambridge Books, Cambridge University Press, number 9780521651486, November.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Cointegration; Exchange Rates; Purchasing Power Parity;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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