Asymmetry in the Purchasing Power Parity in the Context of South Africa

This paper investigated whether the purchasing power parity (PPP) hypothesis holds between South Africa and the United States of America and to determine if there is an asymmetry in the PPP from 1980 to 2020. A decomposition technique was applied to create key variables in which unit root tests such as ADF, PP, and the KPSS were employed. The results of all three tests found that the macro variables exhibited stationary behaviour, thus validating the PPP. Furthermore, by decomposing the variable into positive and negative components, the study reveals that the convergence to equilibrium is asymmetric. By showing this, we also confirmed the existence of asymmetry within the macro variables, which provides important implications for policymakers.