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The paper examines the long run movement between Canadian dollar and US dollar exchange rates. The study uses monthly data for the period 1995:01 to 2008:08 and employs the Engle-Granger cointegration test. Our analysis suggests that the absolute purchasing power parity (PPP) does not hold, indicating no long run relationship between the observed e...
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Context 1
... apply both ADF and PP test. Both tests consistently suggest that the variables under consideration are non-stationary in the level but stationary in the first difference (see Appendix Table 1). As the variables in the study are I(1) in level, we go for cointegration analysis. ...
Context 2
... stationarity result of the error series u is given below in Table 1. We applied DF, ADF and PP to check the stationary property in three possible cases, that is, under the assumption of no constant, only constant, and both constant and trend. ...
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Citations
... The Purchasing Power Parity (PPP) is an ancient framework for analyzing long-term exchange rate movements, suggests that identical goods and services should cost the same in different countries (Al-Zyoud, 2015). Moreover, World Bank (2022) defined the PPP conversion factor as the number of units of a country's currency required to buy the same quantities of goods and services in the domestic market as a EGP would buy in the Egypt. ...
Even though the exchange rate significantly boosted the tourism industry in Egypt, future fluctuations could also cause tourist apprehension and affect inbound tourism flows. Therefore, understanding customer satisfaction and repurchase intentions is vital for predicting future purchasing behaviors in hotels. Based on the current exchange rate change impacts on prices and customers’ evaluations of products and services in hotels and a lack of previous studies that dealt with the topic in Egypt, the research investigates the difference in customer satisfaction and repurchases intentions in hotels during the exchange rate change in Egypt, focuses on demographic and tripographic attributes such as nationality, gender, income, and hotel classes. Both paper-based and web-based questionnaires were distributed to a stratified random sample of 384 guests in three, four, and five-star hotels in the Red Sea and Luxor governorates during the exchange rate change in Egypt. The results reveled that, there is no significant difference between male and female guests in terms of customer satisfaction. On the other hand, there is significant difference between male and female guests in terms of repurchase intentions. Moreover, there is significant difference in customer satisfaction and repurchase intentions in hotels based on guests’ nationality and income-levels during the exchange rate change in Egypt. Additionally, there are significant differences in customer satisfaction and repurchase intentions in hotels based on guests’ nationality and the hotel classes (three, four, and five-star) during the exchange rate change in Egypt. Furthermore, this research contributes to filling a knowledge gap and offers practical implications.
... In the presence of structural breaks, PPP holds only for Bulgaria and Romania but does not hold for the other 6 transition countries. All results emphasised that there is weak evidence for the long-run PPP hypothesis in transition countries and the validity of PPP remains a controversial and unsettled issue Furthermore, Al-Zyoud (2015), examined the long run movement between the U.S. dollar and the Canadian dollar exchange rates using the Engle-Granger cointegration test. The analysis suggests that absolute PPP does not hold meaning that there is no long-run relationship between the Canadian Dollar and the U.S. dollar exchange rate. ...
For more than a decade, there has been substantial interest in testing for the validity of the Purchasing Power Parity (PPP) statistically. This paper utilised a series of statistical tests to ascertain if the PPP theory is valid for a group of five Southeast Asian countries from 2000 to 2016 using monthly data. For this purpose, we conducted four different panel unit root (stationarity) tests, two cointegration tests (Pedroni and Westerlund), and also, the vector autoregressive (VAR) model. The stationarity (unit root) tests reveal that the variables tested are non-stationary at levels but stationary at the first difference, results of the cointegration tests did not reject the null hypothesis of no cointegration meaning there is no long-run relationship between the variables and results of the VAR model did not reveal a strong short-run relationship. Based on the results, we, therefore, conclude that PPP is not valid both in the long-run and short-run in the five Southeast Asian countries between 2000 and 2016. This implies that prices of goods are expected to be different in these countries. Meaning that a businessman can make more profits from buying goods that are cheaper in one of these countries and selling at a higher rate in one of these countries where the goods are more expensive.
... In most economies where long-run PPP theory holds, it helps to determine the extent to which a currency is misaligned (over-or under-valued). Al-Zyoud (2015) argued that a decline (rise) in a country's domestic purchasing power will be connected to a proportionate depreciation (appreciation) of its currency on the foreign exchange market to reflect the PPP. This implies that where the foreign exchange market does not respond correspondingly to the decline (rise) in the purchasing power, then the exchange rate becomes inappropriate or misaligned. ...
This study examines the purchasing power parity (PPP) approach to the determination of exchange rate misalignment in Nigeria by using two variants of the PPP: the absolute PPP (aPPP) and the relative PPP (rPPP). Data on the Nigerian Naira to US Dollar ( N/$), British Pound ( N/£) and Chinese Yuan (N /¥) interbank exchange rates, Nigeria consumer price index and Inflation as well as the US, UK and China consumer price indices and inflation rates spanning 2008:M1 to 2018:M12 were utilized. A recently modified fractional cointegration framework was employed, taking care of smooth structural breaks and nonlinearity, while the unit root tests employed the fractional alternatives. The results confirmed that the aPPP approach to exchange rate determination is unrealistic but revealed empirical support for the rPPP approach. Furthermore, the exchange rates computed with the rPPP approach show that the interbank Naira to US Dollar, UK Pounds and Chinese Yuan exchange rates were overvalued in most of the period of this study. The period of undervaluation observed in June 2016 and April 2017 coincided with the periods when CBN introduced the investors and exporters window. The study recommends the use of rPPP for gauging the level of exchange rate misalignment in Nigeria and suggests the need to diversify the export base to appreciate the exchange rate.
... Nevertheless, there are arguments that the efficacy of purchasing power parity is influenced by causes other than inflation, such as central banks' currency intervention, trade barriers, transaction rates and other variables (Al-Zyoud, 2015;Frankel, 1981;Rogoff, 1996). In addition, the link between inflation and currency depreciation appears to decline from year to year, according to Taylor and Taylor (2014), and researchers are thus starting to question the efficacy of the quantitative parity of buying power. ...
This research aims to study the relationship between exchange rate and this study’s independent variables which are, inflation rate, interest rate and foreign exchange reserve in Malaysia. Secondary data from period of 2013 M1 until 2015 M12, which was retrieved from Bloomberg Data. This study uses empirical tools which is E-Views 11 to compute the variables data into empirical result. The results obtained showed that there is a positive insignificant relationship between inflation rate and exchange rate. However, for interest rate, this study found that there is a negative insignificant relationship between interest rate and exchange rate which implies that interest rate has a negative correlation with exchange rate. Further, based on the result of this study, negative relationship is obtained between foreign reserve money and exchange rate which means when there are trends of increase export and remittance will have positive effect on exchange rate while when there is a trend of increase import and foreign reserve money gave a negative impact on exchange rate. As predicted by the literature review, inflation rate and interest rate should have a negative relationship between exchange rate and foreign exchange reserve should have a positive relationship between exchange rate. Yet, this study found an inverse and slightly different compared with the pasted researches done by many researchers. As this study have its limitations, thus recommendations are suggested for researches that will be done in future.
... The unit root test does not support PPP due to non stationarity of exchange rate and no cointegration exists between price and exchange rate. Zyoud (2015) tested the PPP and found existence but weak level of PPP in short term due to slow movement as compared to change in value of currency. Bhatti (1996) and Shively (2001) supported a long term existence, relative price level move with the proportionate of nominal exchange rate risk and real exchange rate with its equilibrium level in long term. ...
Purpose: This study is aimed at to observe the purchasing power parity (PPP) Theory. The purchasing power parity (PPP) is the most enduring debate of literature in international macroeconomics. It is most controversial due to various puzzles and tested with different econometric models for certain group of countries. Therefore, the PPP is valid assumption while international comparison due to use of common exchange rate and the prevalence of Law of One price.
Design/Methodology/Approach: The validity of PPP for relative countries (Pakistan, China, Iran and Turkey) was tested and analyzed for the sample period 2001 to 2018.
Findings: It is observed that exchange rates of Pakistan, China, Iran and Turkey are not consistent and constant. The deviations of PPP through structural changes identified and are not persistence over long period. Overall results reflected that there is an existence of long run equilibrium relation in between Pakistan and China as well as in between Iran and Turkey. The error correction model has confirmed the adjustment speed of short run disequilibrium to long term disequilibrium level. Implications/Originality/Value: The expected differential level of inflation has significant positive impact to exchange rate shift to Pakistan and trading activity patterns. The changes in foreign exchange market and commodity market due to economic integration are important implications for economic globalization.
... Also, Hussein (2015) used the Engle and Granger cointegration test to empirically test for the validity of the PPP theory for the Canadian dollar and the US dollar exchange rates. The result of the study showed that there is no cointegration between actual exchange rates and PPP rate, suggesting that there is no long-run relationship between the Canadian dollar and the US dollar exchange rates. ...
... p < 0.0000). This findings of the validity of the PPP hypothesis is in line with earlier studies such as (Arize, Malindretos, & Ghosh, 2010, 2015Coakley & Snaith, 2004;Mishra & Sharma, 2010;Sugimota, 2009). However, the Hadri LM test rejects the validity of the PPP hypothesis. ...
This study investigates the validity of a purchasing power parity (PPP) hypothesis in the ECOWAS. Secondary data on real exchange rates, domestic inflation rates, and foreign inflation rates were sourced from the World Development Indicators of the World Bank (2018). Unit root tests, Panel unit root tests, and panel cointegration tests were used to investigate the validity of the PPP hypothesis in the ECOWAS. The study found that the PPP hypothesis is valid individually in all the ECOWAS member countries. The results from the panel unit root tests also confirm the validity of the PPP hypothesis in the ECOWAS. Specifically, the LLC with individual intercept ( t = −5.97117, p < 0.0000), IPS with individual intercept ( t = −3.30564; p < 0.0000), Fisher ADF with individual intercept ( t = −3.43996; p < 0.0003), and Fisher PP with individual intercept ( t = −5.91557; p < 0.0000) while the panel cointegration test rejects the validity of the PPP hypothesis. Therefore, the study suggests that the ECOWAS can cautiously forge ahead with the implementation of their economic integration policies and programs in the sub-region.
... Where the absolute purchasing power parity hypothesis suggests that the exchange rate between any two countries will equal the relative prices between them, as in the following formula: This formula includes that the rise or fall in domestic price level relative to foreign price level will lead to the appreciation or devaluation of the domestic currency in relative to foreign currency. But under this assumption of integrated goods and markets (Al-Zyoud, 2015). This assumption is not achieved in the real world, therefore the possibility of the absolute PPP hypothesis to valid is difficult. ...
... Furthermore, [4], examined the long-run changes among the U.S. dollar and the Canadian dollar exchange rates using the Engle-Granger cointegration test. The investigation proposes that absolute PPP did not hold meaning that there was no long-run association betwixt the Canadian Dollar and the U.S. dollar exchange rate. ...
The purchasing power parity theory says that the trade rates among two nations ought to be equivalent to the proportion of the total price levels between the two nations. For more than a decade, there has been substantial interest in testing for the validity of the Purchasing Power Parity (PPP) empirically. This paper performs a series of tests to see if PPP is valid for ASEAN-5 nations for the period of 2000-2016 using monthly data. For this purpose, we conducted four different tests of stationarity, two cointegration tests (Pedroni and Westerlund), and also the VAR model. The stationarity (unit root) tests reveal that the variables are not stationary at levels however stationary at first difference. Cointegration test results did not reject the H0 of no cointegration implying the absence long-run association among the variables and results of the VAR model did not reveal a strong short-run relationship. Based on the data, we, therefore, conclude that PPP is not valid in long-and short-run for ASEAN-5 during 2000-2016.
... It can be concluded that the length of the PPP doctrine is not valid in this study. These results reinforce the study conducted by Pattinasarany (1997) for the case of Indonesia that there is no co-integration between the change in the exchange rate with the inflation rate in the consumer price index price level, other studies support the no co-integration in the long run is Hoque (1995), Edison (1997), Menezes & Resende (1995), Al-Zyoud (2015). And vice versa study Pippenger (1993) and Ramirez & Khan (1999) that the PPP hypothesis applies to long-term. ...
The goal of this study is to analyze the doctrine purchasing power parity (PPP) in Indonesia with the case study of the rupiah exchange rate to U.S. dollar. The autoregressive is used to estimate the relationship between the change of exchange rate and the difference Indonesia–USA inflation rate. The data used in this study are quarterly data obtained from the International Financial Statistics (IFS) and Bank Indonesia (BI) with the period 1997Q4-2013Q4. The exchange rate that used in this study is using the rate on rupiah to U S dollar. The price data used consumer price index in Indonesia and the United States with a base year of 2000. The results of this study show, that rupiah to the U.S. dollar is undervalued during the free floating exchange rate system and, the PPP doctrine to the case of the rupiah to the U.S. dollar is not valid in the period of this study.
... Many recent studies have examined the hypothesis of PPP in different countries, the most recent by Al-Zyoud (2015) examines the long run movement between Canadian dollar and US dollar exchange rates for the period 1995:01 to 2008:08 and employs the Engle- Granger cointegration test. The analysis suggests that absolute purchasing power parity does not hold, indicating no long run relationship between the observed exchange rate and PPP rate. ...
