Testing the modified-combined ppp and uip hypothesis in South Asian economies

• Autores: Abdul Rashid Ahmad
• Localización: Applied econometrics and international development, ISSN 1578-4487, Vol. 9, Nº. 1, 2009, págs. 199-218
• Idioma: inglés
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• Resumen

  • In this paper, the interrelations between PPP and UIP are modified and tested for South Asian economies using multivariate cointegration approach. The study uses monthly data and sample period varies cross-country according to floating exchange rate regime. The results obtained are highly supportive of this version of the combined PPP and UIP, which takes into account the non-traded and imperfect capital mobility phenomena. Consistent with the capital enhanced equilibrium exchange rates (CHEERs) approach, the determination of the nominal exchange rate is consistent with the UIP-PPP conditional equilibrium. The interaction between PPP and UIP has consequential implications for financial reforms, an exchange rate based stabilization program and exchange rate policy alike.