Holmes, M. & Wang, P. (2006). Asymmetric adjustment towards long-run PPP: Some new evidence for Asian economies, International Economic Journal, 20(2), 161-177.
Permanent Research Commons link: https://hdl.handle.net/10289/1844
This paper investigates relative purchasing power parity for a sample of nine Asian economies during the post-Bretton Woods floating exchange rate era. While most existing studies of purchasing power parity employ linear tests of non-stationarity or non-cointegration, we employ a new cointegration test, recently advocated by Enders & Siklos and Enders & Dibooglu, that tests for an asymmetric adjustment towards parity with respect to positive and negative real exchange rate deviations from parity. In most cases, we find that long-run purchasing power parity is most likely to hold with respect to positive deviations only.
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