Examining international parity relations between Kenya and Uganda

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dc.creatorOthieno, Ferdinand
dc.date03/09/2015
dc.dateMon, 9 Mar 2015
dc.dateMon, 9 Mar 2015 20:02:50
dc.dateMonth: 6 Day: 1 Year: 2012
dc.dateMon, 9 Mar 2015 20:02:50
dc.date.accessioned2015-03-18T11:29:17Z
dc.date.available2015-03-18T11:29:17Z
dc.date.createdJune 2012
dc.descriptionJournal article
dc.descriptionThis paper analyses empirically the purchasing power parity, the uncovered interest parity and the real interest parity (Fisher parity) between Kenya and Uganda. The paper first tests the three parity relations using stationarity tests. Afterwards the study jointly models international parity conditions, namely PPP, RIP and UIP using a Cointegrated Vector Autoregressive approach. From the analysis of the individual parities, there is no evidence that the individual parities hold between the two countries except for RIP. On the other hand the joint VAR model establishes that the Kenya-Uganda inflation rates, interest rates, and the real exchange rate have followed a long-run equilibrium-correcting behavior. The joint Cointegrated VAR analysis reveals that all the endogenous variables explain more than 99.95% of the VAR model. This indicates a fast correction towards the long run equilibrium of the parity relations. Hence when the three parity relations are jointly modeled, it can be argued that Uganda has shown a tendency to converge to Kenya both in both nominal and real terms
dc.description.abstractThis paper analyses empirically the purchasing power parity, the uncovered interest parity and the real interest parity (Fisher parity) between Kenya and Uganda. The paper first tests the three parity relations using stationarity tests. Afterwards the study jointly models international parity conditions, namely PPP, RIP and UIP using a Cointegrated Vector Autoregressive approach. From the analysis of the individual parities, there is no evidence that the individual parities hold between the two countries except for RIP. On the other hand the joint VAR model establishes that the Kenya-Uganda inflation rates, interest rates, and the real exchange rate have followed a long-run equilibrium-correcting behavior. The joint Cointegrated VAR analysis reveals that all the endogenous variables explain more than 99.95% of the VAR model. This indicates a fast correction towards the long run equilibrium of the parity relations. Hence when the three parity relations are jointly modeled, it can be argued that Uganda has shown a tendency to converge to Kenya both in both nominal and real terms
dc.formatVolume Number:4
dc.formatIssue No.:6
dc.identifier10.5539/ijef.v4n6p132
dc.identifier
dc.identifier.urihttp://hdl.handle.net/11071/3852
dc.languageeng
dc.publisherCanadian Center of Science and Education
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dc.subjectpurchasing power parity
dc.subjectuncovered interest parity
dc.subjectreal interest parity
dc.subjectcommon currency
dc.subjectcointegrated var
dc.subjectEast African community
dc.titleExamining international parity relations between Kenya and Uganda
dc.typeArticle
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