NAŠE GOSPODARSTVO / 
OUR ECONOMY

Testing the Purchasing Power Parity Hypothesis: Case of ASEAN Economies

Jani Bekő, Darja Boršič

Abstract


We examine the purchasing power parity (PPP) hypothesis of 10 members of
ASEAN. A battery of panel unit root tests is employed on data series from January
1995 to January 2018 in order to search for validity of PPP in the period before
the Great Recession and in the post-crisis period. All the calculations are based
on four numeraire currencies: Chinese yuan (CNY), Japanese yen (JPY), US dollar
(USD), and the euro (EUR). First, following the outcome of the present study for
ASEAN countries, the PPP holds mostly with respect to CNY rates. Second, for
the post-financial crisis period, our research proves conclusively that the PPP
supposition is predominantly valid between the currencies of ASEAN countries
and EUR rates. The sample of countries in the study is limited to the ASEAN
group of economies. Based on the evaluated parity conditions, the emergence
of global economic crisis brought about significant currency shifts in the ASEAN.
The selection and testing of a broader range of numeraire currencies is vital to
provide empirical underpinning for PPP notion.


Keywords


purchasing power parity, panel unit root tests, ASEAN countries, currency markets

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