Purchasing power parity confirmed in African less developed countries, impacting inflation rates.
The study tested if purchasing power parity holds in African less developed countries using a new panel data unit root test. The researchers found that while individual country tests rejected purchasing power parity, the panel data test supported it. This suggests that purchasing power parity is more likely in high inflation countries, with a one-off random shock having a half-life of about six quarters. These findings were consistent for the period of 1974-97 and 1960-73.