Validity of Purchasing Power Parity in Fragile Five Countries: The Bayesyen Unit Root Analysis

Authors : Burcu YILDIRIM TIRAŞOĞLU, Nilgün ÇİL

Pages : 82-90

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Publication Date : 2018-06-01

Article Type : Research Paper

Abstract :The Purchasing Power Parity insert ignore into journalissuearticles values(PPP); is one of the most debated issues in international economy. The purchasing power validity of the Fragile Five countries insert ignore into journalissuearticles values(Brazil, Indonesia, South Africa, India and Turkey); for the period 1990:Q1 – 2016: Q2 period was tested using the ADF and Sims insert ignore into journalissuearticles values(1988); Bayesian unit root test in this study. The analysis showed that the PPP is valid only for India. The Purchasing Power Parity insert ignore into journalissuearticles values(PPP); theory was first introduced to the literature by the Swedish economist Gustav Cassel in 1918, but the idea underlying the PPP dates back to the academic writings of scientists at Salamanca University in the 15th and 16th centuries. The Purchasing Power Parity theory, which is one of the most important and most debated topics of international economy, is based on the Single Price Law. The Purchasing Power Parity is a version of the Single Price Law applied to international markets. The Single Price Law argues that in an environment where transportation costs, trade barriers and taxes do not exist, the prices of similar goods traded in different countries must be equal when expressed in the same currency.
Keywords : Bayesian Unit Root Tests, Stationarity, Purchasing Power Parity, Fragile Five Countries