Purchasing power parity in ASEAN+3: an application of panel unit root tests

Abstract

Abstract The paper assesses the existence of purchasing power parity (PPP) in ASEAN+3 economies taking into account EUR and USD as reference currencies. The research refers to the period from January 2000 to June 2017 and there are three points of view: we tested the period as a whole and then the pre-crisis period and the postcrisis period regarding the structural break due to the economic crisis. The evaluated economies include Brunei, Cambodia, China, Indonesia, Japan, Korea, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. A range of panel unit root tests are applied, covering the Levin, Lin and Chu test, the Breitung test, the Im, Pesaran and Shin test, the ADF-Fisher test and the PP-Fisher test. In cases where the unit root is rejected, the validity of PPP is confirmed. However, our results are ambiguous and depend on the selection of the base currency, the time period observed and on the choice of the methodology.