Article2007

Purchasing Power Parity in Transition Economies: Does It Hold in the Czech Republic, Hungary and Slovenia?

30 citations0/0 files storedPost-Communist Economies

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Monetary Policy and Economic Impact Financial Markets and Investment Strategies Global Financial Crisis and Policies

Abstract

This article assesses the theory of purchasing power parity for the Czech Republic, Hungary and Slovenia in comparison with Austria, Germany, France and Italy, employing data from January 1992 to December 2006. The unit root tests applied fail to prove stationarity of the real exchange rate series. Although cointegration was found among nominal exchange rates and selected consumer price indices, the theory of purchasing power parity could not be confirmed for any of the three advanced transition countries. Following the literature on price movements and macroeconomic policies in transition economies, we list some arguments that substantiate our findings.

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References

1987Co-Integration and Error Correction: Representation, Estimation, and Testing 1979Distribution of the Estimators for Autoregressive Time Series with a Unit Root 1992Testing the null hypothesis of stationarity against the alternative of a unit root 1991Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models 1979Distribution of the Estimators for Autoregressive Time Series With a Unit Root 2001LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power 1994Automatic Lag Selection in Covariance Matrix Estimation 1996The Purchasing Power Parity Puzzle

Cited by

2009Optimum Currency Areas, Structural Changes and the Endogeneity of the OCA Criteria: Evidence from Six New EU Member States 2009Purchasing Power Parity in transition economies: evidence from the Commonwealth of Independent States 2016Revisiting purchasing power parity in Eastern European countries: quantile unit root tests 2008Purchasing power parity in Central and Eastern Europeancountries.2015Purchasing Power Parity in Transition Countries: Panel Stationary Test with Smooth and Sharp Breaks

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