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Extended generalized purchasing power parity and optimum currency area in East Asian countries
Publisher(s)
Scopus
University of the Thai Chamber of Commerce
Date Issued
2010
Other Contributor(s)
University of the Thai Chamber of Commerce. Research Support Office
Abstract
This article extends the theory of generalized purchasing power parity (GPPP) by developing a model including foreign variables such as the real money supply, output and interest rate. A cointegration rank test with two structural breaks in the deterministic trend was adopted to selected Asian countries, with Japan as the base country. There were two cointegrating vectors and six common stochastic trends in the model. The cointegrating vectors were estimated by the same approach used byPesaran et al. (2000). The first cointegrating vector is interpreted as GPPP, and the second one is interpreted as the extended GPPP. According to GPPP, these countries could form a single currency area. The first stochastic trend is primarily driven by Japan's real money supply; the second, third and fourth by the real exchange rates of the Philippines, Singapore and Thailand, respectively; the fifth by Japan's output; and the sixth by Japan's government bond yields.
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University of the Thai Chamber of Commerce
Bibliographic Citation
P. Rangkakulnuwat, S.K. Ahn, H. Holly Wang, S. He (2010) Extended generalized purchasing power parity and optimum currency area in East Asian countries. Applied Economics Vol.42 No.4, 497-513.
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