Purchasing power parity in Central and Eastern European countries: an analysis of unit roots and nonlinearities

Juan Carlos Cuestas

61 citations0/0 files storedApplied Economics Letters

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Abstract

The aim of this article is to analyse the empirical fulfilment of purchasing power parity (PPP) in a number of Central and Eastern European countries. For this purpose we apply two different unit root tests in order to control for two sources of nonlinearities, i.e. Bierens (Citation1997) and Kapetanios et al. (Citation2003). We find that PPP holds in most of these countries once account has been taken of nonlinear deterministic trends and smooth transitions.

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References

2001LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power 2002Testing for a unit root in the nonlinear STAR framework 1998Unit-Root Tests and Asymmetric Adjustment With an Example Using the Term Structure of Interest Rates 2001Nonlinear Mean‐Reversion in Real Exchange Rates: Toward a Solution To the Purchasing Power Parity Puzzles 2003Why is it so difficult to beat the random walk forecast of exchange rates?1997Transactions Costs and Nonlinear Adjustment in Real Exchange Rates; An Empirical Investigation 1992Dynamic Equilibrium and the Real Exchange Rate in a Spatially Separated World 2001Likelihood‐based cointegration tests in heterogeneous panels

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2009Purchasing Power Parity in Central and East European Countries 2008Testing for PPP in Australia: evidence from unit root tests against nonlinear trend stationarity alternatives 2016Revisiting purchasing power parity in Eastern European countries: quantile unit root tests 2016Purchasing power parity and real exchange rate in Central Eastern European countries 2012

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