Does Long Run Purchasing Power Parity (PPP) Hold Within The Southern African Customs Union (SACU)?

Abstract

This paper employs panel data unit root and co-integration tests, in the spirit of Pedroni (1995, 1998) and Larsson et al. (1998, 2001), to investigate the validity or otherwise of the PPP hypothesis within the SACU area. We are able to find evidence in support of the PPP hypothesis using Larsson et al. (1998, 2001). The Larsson et al.’s (1998, 2001) procedure is an extension of Johansen’s (1988, 1995) methodology that allows for estimation of the number of co-integrating relations. This offers an interesting alternative to the residual based co-integration tests