Validity of Purchasing Power Parity in BRICS under a DFA Approach
Validity of Purchasing Power Parity in BRICS under a DFA Approach

Summary/Abstract: This study tests the validity of the purchasing power parity (PPP) theory in Brazil, Russia, India, Macao-China and South Africa. We examine real exchange rates of these countries for mean reversion. The Hurst exponent is our mean reversion measure which is evaluated by the Detrended Fluctuation Analysis (DFA) in a rolling window to determine the validity of the PPP theory amongst these countries through time. Our results show persistence in real exchange rates; an indication not supporting the PPP theory in the five countries. The study contributes to the extant literature of the PPP theory in BRICS using the DFA approach in a rolling window through time.

• Details
• Contents