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The role of structural breaks, nonlinearity and asymmetric adjustments in African bilateral real exchange rates
journal contributionposted on 2016-06-01, 09:15 authored by Ahmad Hassan AhmadAhmad Hassan Ahmad, Olalekan B. Aworinde
This paper examines the validity of the purchasing power parity, PPP for six African countries of Botswana, Ghana, Kenya, Nigeria, South Africa and Tanzania using the countries' bilateral real exchange rates with their fifteen major trading partners for the period 1960–2011. It uses the Lagrangian multiplier, LM, which accommodates up to two endogenous structural breaks in addition to conventional unit root tests. The paper also uses the threshold cointegration tests to explore nonlinearity and asymmetric adjustments of the series. Results from the LM unit root tests indicate that the exchange rates of Botswana, Ghana, Kenya and Nigeria relative to their major trading partners are stationary. The results from the threshold cointegration suggest that there is a long-run relationship between the series and that the adjustments are asymmetric. Appreciation is faster than depreciation in most of the countries. This is consistent with suggestions that countries are intolerant of depreciation.
- Business and Economics
Published inInternational Review of Economics and Finance
CitationAHMAD, A. and AWORINDE, O., 2017. The role of structural breaks, nonlinearity and asymmetric adjustments in African bilateral real exchange rates. International Review of Economics and Finance, 45, pp. 144–159.
- AM (Accepted Manuscript)
Publisher statementThis work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/
NotesThis paper was accepted for publication in the journal International Review of Economics and Finance and the definitive published version is available at http://dx.doi.org/10.1016/j.iref.2016.05.004.