VALIDITY OF PURCHASING POWER PARITY in VISTA COUNTRIES: A TIMEVARYING FOURIER ADF UNIT ROOT TEST APPROACH
BURSA 7th INTERNATIONAL CONFERENCE ON HUMANITY and SOCIAL SCIENCES, Bursa, Turkey, 3 - 05 July 2026, pp.249-257, (Full Text)
- Publication Type: Conference Paper / Full Text
- City: Bursa
- Country: Turkey
- Page Numbers: pp.249-257
- Çanakkale Onsekiz Mart University Affiliated: Yes
Abstract
This paper investigates the validity of the Purchasing Power Parity (PPP) hypothesis in VISTA countries (Vietnam, Indonesia, South Africa, Türkiye, and Argentina), which represent a prominent group of emerging economies. In the empirical analysis, we employ the Fourier ADF (FADF) unit root test introduced by Enders and Lee (2012), which accounts for structural changes such as policy shifts and economic crises without requiring prior knowledge of the exact timing or form of the breaks. Furthermore, since macroeconomic shocks may restrict the validity of PPP to specific sub-periods, the FADF test is implemented in a time-varying framework sequentially, and the dynamics are illustrated using bootstrap p-values. The full sample empirical results indicate that the PPP hypothesis holds only for Argentina, whereas it is rejected for the remaining VISTA nations in the long run. However, the time-varying FADF test results reveal that even in countries where PPP is rejected for the entire sample, the hypothesis becomes temporarily valid during specific sub-periods and policy shifts. These indings suggest that exchange rate regimes and monetary policy shocks periodically dictate PPP dynamics in emerging markets.