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How to improve bank regulation in Indonesia: an empirical study ofoptimal bank corrective action employing the dynamic contingent claims model

preprint
posted on 02.08.2005 by Maximilian Hall, Ganjar Mustika
This paper investigates the possibility that long-run relative purchasing power parity is dependent upon the nature of real exchange shocks that are experienced. While existing studies involving developed and less developed countries often find against purchasing power parity having employed linear tests of non-stationarity or non-cointegration, we employ a new cointegration test, recently advocated by Enders and Siklos and Enders and Dibooglu, that tests for an asymmetric adjustment towards parity with respect to positive and negative real exchange rate shocks. Using a sample of ten African economies with data taken from the post-Bretton Woods floating exchange rate era, long-run purchasing power parity holds in eight of these cases if an explicit distinction is made between positive and negative shocks. Across the sample, we find variation in the type of asymmetry experienced and the roles played price and nominal exchange rate adjustment.

History

School

  • Business and Economics

Department

  • Economics

Pages

665738 bytes

Publication date

2004

Notes

Economics Research Paper, no. 04-15

Language

en

Exports