Browsing by Author "Walker, Ernest Edward"

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    Using apple product prices to evaluate the law of one price and product derived real exchange rates
    (Stellenbosch : Stellenbosch University, 2023-12) Walker, Ernest Edward; van Lill, Dawid; Hollander, Hylton; du Rand, Gideon; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Economics.
    ENGLISH SUMMARY: Empirical literature on the law of one price or purchasing power parity suggests that real exchange rate deviations are more persistent than economic theory would predict. To evaluate these deviations, I construct two novel panel datasets consisting of Apple product prices. The first dataset covers iPod, iPad, and iPhone prices across almost 50 countries spanning more than 10 years, and supports the hypothesis that the law of one price holds for some Apple products in both absolute and relative terms, particularly after controlling for transaction costs. This finding is attributable to the homogeneity of Apple products and the ease of accounting for transaction costs. The results suggest that Apple prices are better suited than often-used alternative price measures to investigate international parity conditions (e.g., the Big Mac Index and the consumer price index). The second panel dataset consists of weekly Apple iPad prices across 35 countries from 2016 through 2021. I use this dataset to evaluate the short-term, nonlinear adjustment behavior of real exchange rates with a range of nonlinear estimation techniques, including locally-weighted scatterplot smoothing, threshold regression models, and piecewise linear approaches. I find that the stochastic law of one price hypothesis is supported. Moreover, real exchange rate half-lives derived from Apple iPads are significantly shorter (estimated to be only a few weeks) than what is typically found in the literature for similar studies on the law of one price and purchasing power parity. Overall, my findings provide new insights into the dynamics of real exchange rates, highlighting the importance of using appropriate price measures and nonlinear estimation techniques.