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Are Real Exchange Rates of Papua New Guinea Mean-Reverting? Evidence from Panel Unit Root Tests

Wickremasinghe, Guneratne B (2009) Are Real Exchange Rates of Papua New Guinea Mean-Reverting? Evidence from Panel Unit Root Tests. Applied Economic Letters, 16 (2). pp. 157-161. ISSN 1350-4851

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Abstract

This article examines mean-reversion of real exchange rates of Papua New Guinea (PNG), which is the crucial condition for purchasing power parity (PPP) to hold. Taking a departure from the most previous studies, we used six panel unit root tests to investigate the empirical validity of the PPP hypothesis to PNG. Both the preliminary analysis performed by examining time series plots of real exchange rates and the results of the panel unit root tests indicate that the PPP does not hold for PNG. These results may be attributed to frictions, such as transportations costs, prevailing in international trade that lead PPP to follow a nonlinear stochastic process. This issue will be investigated in future research.

Item Type: Article
Uncontrolled Keywords: ResPubID18015, mean-reversion of real exchange rates, Papua New Guinea, purchasing power parity (PPP), empirical validity of PPP hypothesis, nonlinear stochastic process
Subjects: Faculty/School/Research Centre/Department > School of Accounting
FOR Classification > 1402 Applied Economics
FOR Classification > 1502 Banking, Finance and Investment
SEO Classification > 9001 Financial Services
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Depositing User: VUIR
Date Deposited: 23 Sep 2011 02:40
Last Modified: 23 Sep 2011 02:40
URI: http://vuir.vu.edu.au/id/eprint/4688
DOI: 10.1080/13504850601018296
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Citations in Scopus: 3 - View on Scopus

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