Quantile unit root test and the PPP in Africa

ABSTRACT

In this study, we apply the Quantile unit root test and revisit the Purchasing Power Parity (PPP) in 20 African countries using real effective exchange rates over the period 1971Q1 to 2012Q4. While traditional unit root tests fail to reject unit root hypothesis in most of the countries, results from Quantile unit root test reject unit root null hypothesis in Ghana, Mauritius, Niger, South Africa, and Togo, providing support for the PPP at least in these five countries. We further estimate the half-life based on Quantile autoregressive (QAR) model to be about 4.57–7.96 quarters (1–2 year).

KEYWORDS:

• Purchasing power parity
• African countries
• Quantile unit root test

JEL CLASSIFICATION:

• C21
• F31

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ For a comprehensive review articles see MacDonald and Taylor (1992), Rogoff (1996), Taylor (1995, 2006), and Bahmani-Oskooee and Hegerty (2009).

² With the exception of Bahmani-Oskooee and Ranjbar (2016), they also use Quantile-based unit root test for 23 OECD countries and support PPP for 16 out of 23 OECD countries.

³ Refer to Koenker and Xiao (2004) for more detailed description.

⁴ For some other applications of these tests see For some other PPP-related articles see Beach, Cottrell Kruse, and Uri (1993), Bahmani-Oskooee (1995), Bahmani-Oskooee and Gelan (2007), Apergis (1998), Arize, Malindretos, and Christoffersen (2003), Baffoe-Bonnie (2004), Bleaney (1992), Hojman (1989), Holmes (2002), Horne (2004), and Sjolander (2007).