The theory of purchasing power parity in MENA countries: The quantile unit root test

This paper examines the theory of purchasing power parity about the exchange rate of the dollar with local currencies in MENA countries - the Middle East and North Africa - using a unit root test established on the quantile auto regressive model during the period 1980-2017. This test, like other unit root tests, uses auto regressive model, unlike other methods that emphasize the mean of the dependent variable, this test employees different variables or quantiles for estimating the regression. If the theory of purchasing power parity is in place, the real exchange rate will be stationary. According to the results of quantile unit root test, the real exchange rate for dollar in all countries except the four countries of Morocco, Bahrain, Saudi Arabia and Jordan has a unit root and is not stationary. Therefore, except for the four countries mentioned, the theory of purchasing power parity is not true in other studied countries. This result could be due to the difference in macroeconomic conditions and less flexibility of the foreign exchange system in these countries compared to developed countries.