Long run real exchange rate movements in fourteen Asian economies, the validity of purchasing power parity

by Khoo, Sye Min

This paper examines the long nui movements of the real exchange rates for eleven East and three South Asian countries, focushg on the stationarity of real exchange rates and the validity of Purchasing Power Panty. The PPP hypothesis is tested by using univariate tests and panel unit root tests. The results show that evidence of mean reversion depends on the lag length chosen- In the tests, using one lag iength, we found no evidence of mean reversion. However, when the lag length was increased to four, there was strong evidence in favour of the PPP hypothesis.