A non-parametric cointegration test of purchasing power parity: the case of Malaysia
This study employs the Johansen and Juselius (1990) cointegration test and the recently proposed Bierens (1997) nonparametric cointegration methodology to test the purchasing power parity (PPP) hypothesis for the Malaysian economies, with respect to her major trading partners- the United States,...
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Main Authors: | , , |
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Format: | Article |
Language: | English |
Published: |
Institute for Development Studies
2004
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Subjects: | |
Online Access: | https://eprints.ums.edu.my/id/eprint/18782/1/A%20non.pdf https://eprints.ums.edu.my/id/eprint/18782/ http://www.ums.edu.my/fpep/files/16_ECO_2003.pdf |
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Institution: | Universiti Malaysia Sabah |
Language: | English |
Summary: | This study employs the Johansen and Juselius (1990) cointegration test and the recently proposed
Bierens (1997) nonparametric cointegration methodology to test the purchasing power parity (PPP)
hypothesis for the Malaysian economies, with respect to her major trading partners- the United States,
Japan and Singapore. The Bierens’s non-parametric cointegration method is utilized in views of the
superiority of non-parametric method at detecting cointegration when the data generating process is
non-linear. Using the Johansen and Juselius cointegration approach, the evidence does not support the
PPP proposition for all cases under investigate. Further analysis using the Bierens’s method, however,
provides strong support for the PPP hypothesis for the Malaysian economies, with respect to U.S.,
Japan and Singapore. Since the Bierens’s method allows for non-linearity in the data generating
process, the discrepancy between the findings from both techniques is interpreted as a consequence of
significant non-linearity in the real exchange rate adjustment to PPP. |
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