Empirical examination on the long run purchasing power parity: evidence from parallel and official market exchange rates

Man, Luo (2014) Empirical examination on the long run purchasing power parity: evidence from parallel and official market exchange rates. MPhil(R) thesis, University of Glasgow.

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Printed Thesis Information: https://eleanor.lib.gla.ac.uk/record=b3060528

Abstract

The thesis undertakes an empirical analysis of the parallel market exchange rate behavior
in the post-Bretton-Woods era based on monthly data spanning the period 1973m01 to
1998 m12 for a heterogeneous group of 56 countries across the globe. The preliminary
investigation regress a crash dummy on parallel market premium using a Binary Choice
model. The main analysis is conducted by estimating the traditional and a parallel market
variant of PPP using the Johansen Multivariate Cointegration method. Based upon the
VEC models obtained the hypothesis of a weak-form and a strong-form PPP are tested in
the form of identifying restrictions on the cointegrating vectors, respectively, whilst the
joint hypothesis of a long-run strong from PPP for parallel rate as well as long-run
informational efficiency in the parallel market is tested for the alternative model. The
empirical results obtained suggest that: weak-form PPP models receive stronger support
than the alternative model across the whole sample especially for the Latin American
economies. The strong-form PPP is best received for African economies but mostly for the
parallel exchange rate solely. The use of parallel market exchange rates and wholesale
price indices has been shown to be more supportive of the PPP validity, especially for the
strong-form PPP. The empirical findings emphasize the need to adopt more flexible
exchange rate policies, while the liberalization of the capital flows and the global
integration of the currency markets are in favour of the countries that avoid adopting
restrictive macroeconomic policies.

Item Type: Thesis (MPhil(R))
Qualification Level: Masters
Subjects: H Social Sciences > HB Economic Theory
Colleges/Schools: College of Social Sciences > Adam Smith Business School > Economics
Supervisor's Name: Ronald, Professor MacDonald and Mario, Professor Cerrato
Date of Award: 2014
Depositing User: Ms Man LUO
Unique ID: glathesis:2014-5296
Copyright: Copyright of this thesis is held by the author.
Date Deposited: 11 Jul 2014 13:57
Last Modified: 11 Jul 2014 13:57
URI: http://theses.gla.ac.uk/id/eprint/5296

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