An Empirical Investigation of the Purchasing Power Parity Hypothesis in European Transition Countries
AbstractThe article is aimed at empirical investigation of the relative version of the purchasing power parity (PPP). It attempts to shed some light on the so-called ´PPP puzzle´ for selected countries in the CEE region a nd Turkey. Because of ambiguous results in the literature, various econometrics methods are employed: univariate tests (URTs: ADF, PP, KPSS, DF-GLS), robust URTs including nonlinear URTs (Kapetanios and Sollis´ and Bierens´ test) and tests allowing for (multiple) structural breaks (Perron, Lee and Strazicich). The euro currency pairs (bilateral) of 10 European transition countries covering the period 1995:1–2011:1 are utilized. Our results for conventional linear (such as ADF or PP test) do not provide a crystal-clear answer, more robust URTs at least partially do, once the source of nonlinearities has been controlled for (structural changes, non-zero adjustment costs). Nonlinear tests with structural breaks provide more convincing evidence in favour of the PPP hypothesis including asymmetrical effects of exchange rate adjustments.
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Bibliographic InfoArticle provided by University of Economics, Prague in its journal Prague Economic Papers.
Volume (Year): 2012 (2012)
Issue (Month): 3 ()
Postal: Editorial office Prague Economic Papers, University of Economics, nám. W. Churchilla 4, 130 67 Praha 3, Czech Republic
Find related papers by JEL classification:
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
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