Testing Balassa-Samuelson model to examine purchasing power parity (PPP) Of Bangladesh with reference to 1972-2016
This paper has investigated Balassa-Samulesonhypothesis in Bangladesh to examine purchasing power parity (PPP) during 1972-2016. The broad objective of this study is to analyse whether purchasing power parity (PPP) holds in Bangladesh or not during the analysedperiod. Johansen Long Run Co integration test has been used through regression analysis to test the long run relationship among real exchange rate, relative price, relative productivity, government share and terms of trade of Bangladesh during 1972-2016.Descriptive statistics of the variables have also been shown. ADF Unit Root test has been used to test the stationary state of panel data. ECM Model, CUSUM & CUSUMQ tests have been applied to test the stability of the model.Johansen Long Run Co integration testhasshowed that there exists a long run relationship among the variables and purchasingpower parity (PPP) does not hold in Bangladesh. It recommends better understanding of volatility and persistence of real exchange rate as transaction costs and nonlinearitymatter for purchasing power parity (PPP).
Balassa-Samuelson Model, Purchasing Power Parity (PPP), Johansen Long Run Co-integration Model,Error Correction Model (ECM),Stability.
Nurul Mohammad Zayed, Fatema Nusrat Chowdhury, K.B.M. Rajibul Hasan