Testing the Purchasing Power Parity Theory: A Case of the Taiwanese Dollar Exchange Rate

Tsurumi, Hiroki; Chen, Chyong L.

doi:1998.13.2.232

Journal of Economic Integration 1998 June;13(2) :232-254.
DOI: https://doi.org/10.11130/jei.1998.13.2.232

Testing the Purchasing Power Parity Theory: A Case of the Taiwanese Dollar Exchange Rate

Hiroki Tsurumi, Chyong L. Chen

Rutgers University
Feng Chia University

ABSTRACT

From July 1978 to April 1989 Taiwan adopted a snake system by allowing the foreign exchange rate to fluctuate within a narrow band of the centere d rate. Using monthly data on the Taiwan dollar/U.S. dollar exchange rate, we show that inference on the purchasing power parity hypothesis is sensitive to whether we incorporate double truncation and autore g ressive and moving average error terms into the regression model. (JEL Classification: C2, F4)

REFERENCE

1.	Tronzano, M. [1992], "Long-Run Purchasing Power Parity and Mean-Reversion in Real Exchange Rates: A Further Comment," Economia Interna zionale 45(1); pp. 77-100.

2.	Central Bank of China, Annual Reports, Taipei, Taiwan, Various Issues.