Testing the Purchasing Power Parity Hypothesis: Case of ASEAN Economies

Jani Bekő; Darja  Boršič

Jani Bekő
Darja Boršič

Keywords: purchasing power parity, panel unit root tests, ASEAN countries, currency markets

Abstract

We examine the purchasing power parity (PPP) hypothesis of 10 members of ASEAN. A battery of panel unit root tests is employed on data series from January 1995 to January 2018 in order to search for validity of PPP in the period before the Great Recession and in the post-crisis period. All the calculations are based on four numeraire currencies: Chinese yuan (CNY), Japanese yen (JPY), US dollar (USD), and the euro (EUR). First, following the outcome of the present study for ASEAN countries, the PPP holds mostly with respect to CNY rates. Second, for the post-financial crisis period, our research proves conclusively that the PPP supposition is predominantly valid between the currencies of ASEAN countries and EUR rates. The sample of countries in the study is limited to the ASEAN group of economies. Based on the evaluated parity conditions, the emergence of global economic crisis brought about significant currency shifts in the ASEAN. The selection and testing of a broader range of numeraire currencies is vital to provide empirical underpinning for PPP notion.

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Author Biographies

Jani Bekő

University of Maribor, Faculty of Economics and Business, Slovenia
E-mail: jani.beko@um.si

Jani Bekő, PhD, is full professor of economic theory and applied economics at the Faculty of Economics and Business, University of Maribor, and head of the Department of Political Economy. He teaches undergraduate and postgraduate courses on microeconomics, the theory of markets and prices, macroeconomics, international economics, and the development of economic theory. He is an active researcher within research program entitled “Adjustment of the Slovenian economy and development identity of Slovenia in EU.” His bibliography is comprised of more than 250 entries.

Darja Boršič

University of Maribor, Faculty of Economics and Business, Slovenia
E-mail: darja.borsic@um.si

Darja Boršič, PhD, is full professor in the field of applied economics and econometrics and associate professor in the field of economic theory and political economy at the Faculty of Economics and Business, University of Maribor. She is head of the Institute for Economic Diagnosis and Prognosis and an active researcher within research program entitled “Adjustment of the Slovenian economy and development identity of Slovenia in EU.” Her research is focused on price levels, exchange rates, and labour market. In the period from December 2011 to June 2014 and from October 2015 to September 2017, she served as vice dean for international cooperation at the Faculty of Economics and Business, University of Maribor, dealing mainly with international accreditation procedures.

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