Revisiting purchasing power parity in the ASEAN-5 countries: evidence from the Fourier quantile unit root test

ABSTRACT

This study examines the long-run validity of purchasing power parity (PPP) through the Fourier quantile unit root test for a sample of ASEAN-5 countries. Using the aforementioned test, we can model structural breaks as a gradual and smooth process. The application of the conventional unit root tests provides conflicting results in support of the PPP hypothesis. However, the results of the Fourier quantile unit root test indicate that the real effective exchange rate series are stationary for Indonesia, the Philippines, Singapore, and Thailand.

KEYWORDS:

• Fourier quantile unit root test
• ASEAN-5
• PPP

JEL CLASSIFICATION:

• C32
• C50
• F31

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Note that, to save space, we do not report the values of ${\alpha }_0(\tau )$ and ${\alpha }_1(\tau )$ as their patterns were in line with the dynamics of the $t_n({\tau }_i)$ statistics. However, their results are available upon request from the authors.

² However, to stabilize short-run exchange rates fluctuation, policymakers may use activist policy as an option to correct deviation from the equilibrium level.