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Purchasing Power Parity of Papua New Guinea: evidence from the floating exchange rate regime

Wickremasinghe, Guneratne B (2005) Purchasing Power Parity of Papua New Guinea: evidence from the floating exchange rate regime. Applied Financial Economics Letters , 1 (6). pp. 335-338. ISSN 1744–6546 (print) 1744–6554 (online)

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Abstract

This study examines the validity of the Purchasing Power Parity (PPP) hypothesis to a developing country such as Papua New Guinea during the floating exchange rate regime. The empirical analysis was performed using recently developed Ng-Perron (2001) unit root tests which are more powerful than widely-used Dickey-Fuller-type unit roots. Ng-Perron test results indicate that the four real exchange rates (Australian dollar, Japanese yen, UK pound and US dollar) are non-stationary. Further, a comparison of exchange rates that should prevail under the PPP with actual exchange rates provides evidence that the kina was undervalued during the sample period. These results are inconsistent with the PPP and have implications for policy makers and participants of the foreign exchange market of Papua New Guinea.

Item Type: Article
Uncontrolled Keywords: Purchasing Power Parity, Papua New Guinea, exchange rate, policy makers, foreign exchange market
Subjects: RFCD Classification > 340000 Economics
RFCD Classification > 350000 Commerce, Management, Tourism and Services
Faculty/School/Research Centre/Department > School of Accounting
FOR Classification > 1402 Applied Economics
Depositing User: Ms Phung T Tran
Date Deposited: 07 Dec 2012 01:32
Last Modified: 07 Dec 2012 01:32
URI: http://vuir.vu.edu.au/id/eprint/1269
DOI: 10.1080/17446540500393740
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