n African Finance Journal - The validity of PPP theory in South Africa : a cointegration approach
|Article Title||The validity of PPP theory in South Africa : a cointegration approach|
|© Publisher:||AfricaGrowth Institute|
|Journal||African Finance Journal|
|Author||Oludele A. Akinboade and Daniel Makina|
|Publication Date||Jan 2006|
|Pages||1 - 11|
|Keyword(s)||F31 and F32|
The paper explores the validity of PPP theory in South Africa. Cointegration theory is applied to monthly data on two nominal exchange rates of the rand and relative prices. Our tests identify that long-run co-movement exists between the nominal exchange rate and the relative prices between South Africa and the US and between South Africa and the UK. An estimated error-correction model shows that a proportion of the deviation from PPP in the initial period is corrected for rate in the following period, only in the rand-sterling exchange.
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