Cointegration tests of purchasing power parity in Africa

Despite two decades of implementing economic reforms, there is still a significant gap between official and black market exchange rates in Africa. African policy makers continue to implement exchange rate policies based largely on the assumption that purchasing power parity (PPP) holds. This paper examines whether there is empirical support for PPP in Africa. We used Johansen's cointegration technique and error correction modeling oil annual data for black market exchange rates and CPI in 30 countries covering 1960-97. We found strong support for the PPP doctrine as a useful guide for exchange rate policy reform in Africa, (C) 2003 Elsevier Ltd. All rights reserved.