Influence of Exchange Rate Shocks on Purchasing Power Parity Test: Using the NARDL Approach

Rezaei., Abbas Ali .; Raeispour, Ali; Zayandehroodi, Mohsen; Jalaee, Seyyed Abdolmajid

doi:10.30473/egdr.2019.48475.5386

Document Type : ORIGINAL ARTICLE

Authors

¹ Ph.D. Student, International Economics, Kerman Branch, Islamic Azad University, Kerman, Iran

² Assistant Professor, Department of Economics, Kerman branch, Islamic Azad University, Kerman, Iran

³ Professor, Department of Economics, Shahid Bahonar University, Kerman, Iran

https://doi.org/10.30473/egdr.2019.48475.5386

Abstract

Purchasing power parity remains an important issue for scholars in the international Economics. The validity of this theory is important not only for empirical studies but also for policy makers. The PPP theory express that due to arbitrage in the international commodity market, the real exchange rate is expected to return to its equilibrium level in the long run. Finally, the researchers concluded that one of the major macroeconomic issues that has been linked to many political debates is the exchange rate, which is a non-linear real exchange rate behavior.
Given the importance of the subject in this study, we decided to investigate the asymmetric measurement of purchasing power parity test using nonlinear auto regressive distributed lag model. In this context, Iran's purchasing power parity with Japan, Norway, Saudi Arabia, Britain and the United States was examined during the period from 1981 to 2017. The results show that in the long run, price shocks have an asymmetric effect on purchasing power parity in Japan, Saudi Arabia, and the United States, while they are symmetric in Norway and the United Kingdom. Moreover, in the short run, price shocks in Japan and Saudi Arabia will have an asymmetric effect on purchasing power parity, while the effect of price shocks in Norway, England and the US on purchasing power parity will be rejected in the short run.

Keywords

20.1001.1.22285954.1399.10.40.4.3

Main Subjects

Economic Growth

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Economic Growth and Development Research

Influence of Exchange Rate Shocks on Purchasing Power Parity Test: Using the NARDL Approach

References

References

Volume 10, Issue 40
September 2020
Pages 92-77

Influence of Exchange Rate Shocks on Purchasing Power Parity Test: Using the NARDL Approach

References

References

Volume 10, Issue 40September 2020Pages 92-77

Volume 10, Issue 40
September 2020
Pages 92-77