Abstract:
This paper tests the validity of Purchasing Power Parity (PPP) hypothesis for two Anglophone ECOWAS members, Nigeria and Ghana. The researcher tested the relative PPP equation. It also employed the ADF univariate Unit Root test for the stationarity of the exchange rates of each of the countries. Exchange rates and CPIs data for all countries were collected on annual basis for the period between 1970 and 2005. The results show the non-rejection of the null hypothesis of the failure of PPP for both countries. The results of the unit root tests show that exchange rates of both countries follow mean reversion. Their respective exchange rates and inflation d~flerentials were found to be stationary at the same order of integration. Consequently in both cases, cointegration is suspected, though this study did not investigate the evidence of . ,, , "1. ,t. . .,a . cointegration because even if it exists, evidence of long-run relationship between NIGH and NIGINF, GHANH and GHANINF is provided. The study went ahead to establish that the purchasing power of Ghanaian Cedi is superior to that of Nigerian Naira. From 11 . . the policy point of view, PPP can be used to assess the levels of exchange rates.
